A Private ltd. company has taken unsecured loan from one of its director in two different dates during the month of April, 2014. Now company wants to convert this unsecured loan into equity by allotment of fully paid up equity shares at par.
Please share the procedure to do the same as per Companies Act, 2013.
20 July 2024
Converting an unsecured loan provided by a director into equity shares in a private limited company involves following specific procedures as per the Companies Act, 2013. Here’s a detailed guide on how to proceed with this conversion:
### Procedure to Convert Loan into Equity Shares:
1. **Check Articles of Association (AOA)**: - Review the company’s AOA to ensure there are no restrictions on converting loans into equity shares. If there are restrictions, consider amending the AOA as necessary.
2. **Board Meeting**: - **Convene a Board Meeting**: Call a meeting of the Board of Directors to discuss and approve the conversion of the loan into equity shares. - **Resolution**: Pass a resolution in the Board meeting approving the terms of conversion, including the number of equity shares to be allotted, the face value of shares (which can be at par in this case), and any other relevant conditions.
3. **Shareholders’ Approval**: - **General Meeting**: If required by the AOA or shareholders agreement, convene a General Meeting of shareholders to obtain their approval for the conversion. - **Special Resolution**: Pass a special resolution at the General Meeting approving the conversion of the loan into equity shares.
4. **Valuation of Shares**: - Determine the valuation of shares to be issued. Since the shares are proposed to be issued at par, ensure compliance with the valuation norms prescribed under the Companies Act, 2013 and rules made thereunder.
5. **Allotment of Shares**: - Prepare the necessary documents including the Allotment Letter, Share Certificates, and Form PAS-3 for filing with the Registrar of Companies (ROC). - Allot the equity shares to the director (lender) who provided the unsecured loan.
6. **Filing with ROC**: - File Form PAS-3 (Return of Allotment) with the ROC within 30 days of allotment of shares. The following documents are required to be filed along with Form PAS-3: - Board Resolution authorizing the allotment. - Shareholder’s resolution approving the allotment (if applicable). - List of allottees. - Allotment Letter. - Share Certificates issued to the shareholders.
7. **Update Statutory Registers**: - Update the Register of Members, Register of Directors and Key Managerial Personnel, and any other relevant registers maintained by the company.
8. **Compliance**: - Ensure compliance with all provisions of the Companies Act, 2013, and other applicable laws, rules, and regulations.
### Additional Considerations:
- **Stamp Duty**: Check if stamp duty is applicable on the issuance of shares and pay it accordingly. - **Tax Implications**: Consult with a tax advisor to understand the tax implications of converting the loan into equity shares for both the company and the director.
### Conclusion:
Converting an unsecured loan into equity shares involves careful adherence to legal procedures and documentation as prescribed under the Companies Act, 2013. Ensure all steps are followed diligently, and consider seeking guidance from a company secretary or legal advisor to facilitate a smooth conversion process. This approach will help maintain compliance and clarity in the company’s financial and shareholder structure.
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