Conversion of loan into equity or preference

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

01 June 2010 I want to know incase of a company they have suppose 22 crores unsecured loan so they wish to convert this loan into equity shares or preference shares so what is the procedure for such conversion and actually to which conversion its permissible as per companies act,is there any specific requirement.

Rasesh

Rasesh (Expert)
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01 June 2010 There is no specific provision in the Companies Act for conversion of unsecured loans into equity/preference shares. The procedure for such conversion is that there should be a resolution from both the parties i.e. the investor and the issuing company wherein both consent for such conversion and determine the terms and conditions. The above would be sufficient. If the issuing company is a public limited company, then provisions of Sec 81(1A) would apply. The investor would have to satisfy 372A limits.