Issue of debenture by private ltd company
This query is : Resolved
02 April 2016
Dear Sir/Madam,
Can Private Limited Company issue 0% Compulsorily Convertible Debentures?What is the procedure for the same and send me draft for the same.
Can Private Limited Company issue 0% Compulsorily Convertible Debentures?What is the procedure for the same and send me draft for the same.
04 April 2016
Yes they can issue it...Refer to Sec 71 72 of Companies Act 2013 & Rule 18 , 19 of Companies (Share capital & Debentures) Rules 2014
04 April 2016
I have refered to above said Sections but its is not clear whether Private or Public, Debenture has to be secured or unsecured.Whether it is in Boards Power or Members approval required.
02 August 2024
Yes, a Private Limited Company can issue 0% Compulsorily Convertible Debentures (CCDs). Here’s a detailed guide on the procedure, requirements, and considerations for issuing such debentures:
### **1. Understanding Compulsorily Convertible Debentures (CCDs)**
Compulsorily Convertible Debentures are a type of debenture that must be converted into equity shares after a specified period or upon the occurrence of certain events. These debentures offer a fixed return rate, but the interest rate can be 0% if the primary benefit is in the conversion into equity rather than earning interest.
### **2. Legal Framework and Procedure**
**a. Legal Framework:**
- **Companies Act, 2013:** Sections relevant to the issuance of debentures include Sections 71 and 179. These sections detail the procedures for issuing debentures, including terms and conditions, and the need for approval.
- **Rules & Regulations:** The issue must also comply with the Companies (Share Capital and Debentures) Rules, 2014 and other relevant regulations.
**b. Procedure:**
1. **Board Approval:**
- **Board Resolution:** The issuance of CCDs requires a board resolution. The board must approve the terms of the debentures, including the conversion terms, tenure, and any other conditions.
- **Draft Resolution:**
```plaintext
RESOLVED THAT pursuant to the provisions of Section 71 of the Companies Act, 2013 and other applicable provisions, if any, the consent of the Board be and is hereby accorded for the issue of Compulsorily Convertible Debentures (CCDs) of the Company, on a private placement basis, with the following terms and conditions:
- Number of CCDs: [Specify number]
- Face Value: [Specify face value]
- Conversion Terms: The CCDs shall be compulsorily convertible into equity shares at a conversion ratio of [Specify conversion ratio].
- Conversion Period: [Specify the conversion period]
- Interest Rate: 0% (Zero Percent)
- Other Terms: [Specify any other relevant terms]
```
2. **Shareholders' Approval:**
- **Special Resolution:** If the CCDs are convertible into equity shares, shareholders' approval by way of a special resolution in a general meeting is required. This is in addition to the board resolution.
- **Draft Special Resolution:**
```plaintext
RESOLVED THAT pursuant to the provisions of Section 71 of the Companies Act, 2013 and other applicable provisions, if any, the consent of the members be and is hereby accorded for the issue of Compulsorily Convertible Debentures (CCDs) of the Company, on a private placement basis, with the following terms and conditions:
- Number of CCDs: [Specify number]
- Face Value: [Specify face value]
- Conversion Terms: The CCDs shall be compulsorily convertible into equity shares at a conversion ratio of [Specify conversion ratio].
- Conversion Period: [Specify the conversion period]
- Interest Rate: 0% (Zero Percent)
- Other Terms: [Specify any other relevant terms]
```
3. **Private Placement Offer Letter:**
- **Issue Offer Letter:** Issue a private placement offer letter to the prospective investors, detailing the terms of the CCDs.
- **Draft Offer Letter:**
```plaintext
[Company Letterhead]
[Date]
To,
[Investor Name]
[Investor Address]
Subject: Private Placement of Compulsorily Convertible Debentures (CCDs)
Dear [Investor Name],
We are pleased to offer you the Compulsorily Convertible Debentures (CCDs) of [Company Name] on a private placement basis, with the following terms and conditions:
- Number of CCDs: [Specify number]
- Face Value: [Specify face value]
- Conversion Terms: The CCDs shall be compulsorily convertible into equity shares at a conversion ratio of [Specify conversion ratio].
- Conversion Period: [Specify the conversion period]
- Interest Rate: 0% (Zero Percent)
- Other Terms: [Specify any other relevant terms]
We request you to confirm your interest and accept this offer by [Specify Date].
Sincerely,
[Your Name]
[Your Designation]
[Company Name]
```
4. **Filing with ROC:**
- **Form PAS-3:** File Form PAS-3 with the Registrar of Companies (ROC) for the allotment of debentures.
- **Form MGT-14:** File Form MGT-14 with the ROC for the special resolution passed by the shareholders.
5. **Debenture Trust Deed:**
- **Execution of Deed:** Execute a debenture trust deed, which outlines the terms of the debentures and the rights and obligations of the parties involved.
6. **Creation of Charge:**
- **Form CHG-9:** If the debentures are secured, file Form CHG-9 with the ROC to register the charge created on the assets of the company.
### **3. Secured vs. Unsecured Debentures**
- **Secured Debentures:** Generally require creation of a charge on the company’s assets. The charge must be registered with the ROC.
- **Unsecured Debentures:** Do not require a charge on the assets. However, all terms and conditions must be properly documented and approved.
### **4. Board vs. Shareholders Approval**
- **Board Approval:** Required for the initial decision to issue debentures and setting the terms.
- **Shareholders’ Approval:** Required for the issuance if the debentures are to be converted into equity shares, as per the Companies Act, 2013.
### **5. Drafting and Documentation**
Ensure all the drafted documents, resolutions, and forms are aligned with the requirements of the Companies Act, 2013 and related rules.
### **6. Additional Considerations**
- **Compliance with SEBI (for public companies):** If the company becomes public or the issue is made public, compliance with SEBI regulations is necessary.
- **Regulatory Compliance:** Ensure compliance with all applicable laws and regulations to avoid any legal complications.
By following these procedures and ensuring proper documentation, your private limited company can successfully issue Compulsorily Convertible Debentures.
### **1. Understanding Compulsorily Convertible Debentures (CCDs)**
Compulsorily Convertible Debentures are a type of debenture that must be converted into equity shares after a specified period or upon the occurrence of certain events. These debentures offer a fixed return rate, but the interest rate can be 0% if the primary benefit is in the conversion into equity rather than earning interest.
### **2. Legal Framework and Procedure**
**a. Legal Framework:**
- **Companies Act, 2013:** Sections relevant to the issuance of debentures include Sections 71 and 179. These sections detail the procedures for issuing debentures, including terms and conditions, and the need for approval.
- **Rules & Regulations:** The issue must also comply with the Companies (Share Capital and Debentures) Rules, 2014 and other relevant regulations.
**b. Procedure:**
1. **Board Approval:**
- **Board Resolution:** The issuance of CCDs requires a board resolution. The board must approve the terms of the debentures, including the conversion terms, tenure, and any other conditions.
- **Draft Resolution:**
```plaintext
RESOLVED THAT pursuant to the provisions of Section 71 of the Companies Act, 2013 and other applicable provisions, if any, the consent of the Board be and is hereby accorded for the issue of Compulsorily Convertible Debentures (CCDs) of the Company, on a private placement basis, with the following terms and conditions:
- Number of CCDs: [Specify number]
- Face Value: [Specify face value]
- Conversion Terms: The CCDs shall be compulsorily convertible into equity shares at a conversion ratio of [Specify conversion ratio].
- Conversion Period: [Specify the conversion period]
- Interest Rate: 0% (Zero Percent)
- Other Terms: [Specify any other relevant terms]
```
2. **Shareholders' Approval:**
- **Special Resolution:** If the CCDs are convertible into equity shares, shareholders' approval by way of a special resolution in a general meeting is required. This is in addition to the board resolution.
- **Draft Special Resolution:**
```plaintext
RESOLVED THAT pursuant to the provisions of Section 71 of the Companies Act, 2013 and other applicable provisions, if any, the consent of the members be and is hereby accorded for the issue of Compulsorily Convertible Debentures (CCDs) of the Company, on a private placement basis, with the following terms and conditions:
- Number of CCDs: [Specify number]
- Face Value: [Specify face value]
- Conversion Terms: The CCDs shall be compulsorily convertible into equity shares at a conversion ratio of [Specify conversion ratio].
- Conversion Period: [Specify the conversion period]
- Interest Rate: 0% (Zero Percent)
- Other Terms: [Specify any other relevant terms]
```
3. **Private Placement Offer Letter:**
- **Issue Offer Letter:** Issue a private placement offer letter to the prospective investors, detailing the terms of the CCDs.
- **Draft Offer Letter:**
```plaintext
[Company Letterhead]
[Date]
To,
[Investor Name]
[Investor Address]
Subject: Private Placement of Compulsorily Convertible Debentures (CCDs)
Dear [Investor Name],
We are pleased to offer you the Compulsorily Convertible Debentures (CCDs) of [Company Name] on a private placement basis, with the following terms and conditions:
- Number of CCDs: [Specify number]
- Face Value: [Specify face value]
- Conversion Terms: The CCDs shall be compulsorily convertible into equity shares at a conversion ratio of [Specify conversion ratio].
- Conversion Period: [Specify the conversion period]
- Interest Rate: 0% (Zero Percent)
- Other Terms: [Specify any other relevant terms]
We request you to confirm your interest and accept this offer by [Specify Date].
Sincerely,
[Your Name]
[Your Designation]
[Company Name]
```
4. **Filing with ROC:**
- **Form PAS-3:** File Form PAS-3 with the Registrar of Companies (ROC) for the allotment of debentures.
- **Form MGT-14:** File Form MGT-14 with the ROC for the special resolution passed by the shareholders.
5. **Debenture Trust Deed:**
- **Execution of Deed:** Execute a debenture trust deed, which outlines the terms of the debentures and the rights and obligations of the parties involved.
6. **Creation of Charge:**
- **Form CHG-9:** If the debentures are secured, file Form CHG-9 with the ROC to register the charge created on the assets of the company.
### **3. Secured vs. Unsecured Debentures**
- **Secured Debentures:** Generally require creation of a charge on the company’s assets. The charge must be registered with the ROC.
- **Unsecured Debentures:** Do not require a charge on the assets. However, all terms and conditions must be properly documented and approved.
### **4. Board vs. Shareholders Approval**
- **Board Approval:** Required for the initial decision to issue debentures and setting the terms.
- **Shareholders’ Approval:** Required for the issuance if the debentures are to be converted into equity shares, as per the Companies Act, 2013.
### **5. Drafting and Documentation**
Ensure all the drafted documents, resolutions, and forms are aligned with the requirements of the Companies Act, 2013 and related rules.
### **6. Additional Considerations**
- **Compliance with SEBI (for public companies):** If the company becomes public or the issue is made public, compliance with SEBI regulations is necessary.
- **Regulatory Compliance:** Ensure compliance with all applicable laws and regulations to avoid any legal complications.
By following these procedures and ensuring proper documentation, your private limited company can successfully issue Compulsorily Convertible Debentures.
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