Shares issued against loan

This query is : Resolved

Amit dimri (Querist)
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09 January 2016 Can a private limited company issue shares to its director against loan taken ??

Urgent rply (In case of Director).

CS Divesh Goyal

CS Divesh Goyal (Expert)
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09 January 2016
CONVERSION OF LOAN INTO EQUITY
GOYAL DIVESH & ASSOCIATES,
Practicing Company Secretary

QUESTION: CAN A COMPANY CONVERT LOANS INTO SHARE CAPITAL OF COMPANY UNDER COMPANIES ACT 2013 (EXCEPT LOAN TAKEN AND DEBENTURE ISSUED TO GOVERNMENT COMPANY).

Solution: Section 62 sub section 3 of Companies Act, 2013

As per The Section:
I. Provisions of Section- 62 doesn’t required to follow in this situation
II. Special Resolution required filing at the time of issue of Debenture and Loan.

Observation:
I. If a company issue Debenture or take loan with the condition to convert such loan and debenture into Shares in future then company has to pass a Special Resolution at the time of accepting of Loan and issue of Debentures. {Proviso of subsection 3 of Section 62}
II. Required to file form MGT-14 for submission of Special Resolution with ROC.
III. Terms should be attached to the Debenture and Loan for conversion into Capital in future.
IV. No need to follow the process given u/s 62 for issue of shares. (subsection 3 of Section 62) [No need to issue Offer Letter in this situation)

Note:

A. If a Company have raised loan earlier in old Companies Act, 1956 and want to convert such loan into Capital of Company, can he do so?

Solu: Yes, he can do so. Because Special resolution was not required at that time

B. If a Company have raised loan earlier in Companies Act, 2013 and want to convert such loan into Capital of Company, can he do so?
Solu: YES, he can do so. if at the time of raising of money he had passed Special Resolution and if company had passed special resolution at the time of receipt of money then he can convert such loan into capital of company.
Following things are required:
a) Special Resolution at the time of raising of Loan
b) Filed MGT-14 with ROC for Special Resolution.
c) Pass a Board Resolution at the time of conversion of same into Share Capital.
d) File form MGT-14 for issue of shares
e) File form PAS-3 for allotment of shares.