Conversion of Loan into Equity

Conversion of Loan Into Equity Share Capital

Conversion of Loan Into Equity Share Capital

Conversion of loan into equity share capital is most reliable mode to raise capital without immediate investments. In order to carry out smooth business, at times, debt is converted into share capital.

The Companies Act, 2013 has come up with new provisions for conversion of loan into equity shares and the same are contained in section 62(3) of the said Act. The new provisions are effective from 1st April, 2014. Current article highlight the provisions and procedure for conversion of loan into equity shares.

In order to convert loan into share capital, as per provisions of section 62(3) of the Companies Act, the company has taken loan on the terms that the loan will be converted into share capital and such option has been approved by special resolution before taking of loan then in such case subscribed capital can be increased.

It must be noted that it is at most important to pass the special resolution at the time of acceptance of the loan without passing of special resolution, loan cannot be converted into share capital.

Steps For Conversion of Loan Into Equity Shares

Steps for conversion of loan into equity share capital are follows –

  1. The initial step is to approve the terms of loan by passing of a special resolution prior to taking of loan and filing of special resolution in E-form MGT 14 within a period of 30 days.
  2. Next step is to convert loan into shares by passing of a resolution in Board meeting and filing of E-form PAS3 for allotment of shares within a period of 30 days of passing of Board resolution.
  3. It is required to issue share certificate by passing Board’s resolution and filing E-form MGT 14 within a period of 30 days for issue of shares.

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Post by balaji t

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