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Conversion of Director's loan to equity

Shiv (Article assistant) (48 Points)

19 May 2010

Can anyone provide me the information as regards to the issue of shares to the director's of the company by conversion of thier loan to equity? what would be the procedure and the required compliance in this regards?

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2 Replies

J. Manivannan (Advocate & IP) (242 Points)
Replied 19 May 2010

Dear Mr. Shiv

The company make a proposal to concerned director(s) relating to entire loan given by him has been converted into equity shares of the company and obtains his (their) consent for the same.

That allotment covered under section 81(1A) as preferential basis, and then obtains members consent through General meeting. (If required)

Thereafter, allotment to be made through Board Meeting by way passing following resolution.

Board Resolution

“RESOLVED THAT pursuant to provisions of section 75 of the Companies Act, 1956, the resolution passed under section 81(1A) of the Companies Act, 1956 by the Shareholders of the Company at the Extra-ordinary General Meeting held on _________(date) and Articles of Association of the Company, a total of 1,00,000 (One Lakhs ) fully paid-up equity shares of Rs. 10/- each of the Company be and is hereby allotted to Mr. X, Director of the Company by converting the existing loan given by him to the Company.”

Said allotment must be intimated to ROC through Form-2 with List of Allottees within 30 days from the date of allotment.

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Shiv (Article assistant) (48 Points)
Replied 19 May 2010

Dear Mr. Vannan,

In the above case, there is a private company under consideration and there are only two directors. These two directors are the only two members of the company. Board cannot pass the resolution as both the directors are intrested. Now how to proceed with the things.............extra ordinary GM will serve the purpose?