Conversion of unsecured loan into equity share capital

Hi

Forst of all you check, whether the agreement of loan with shareholder has given such clause of conversion of unsecured loan in to share capital. If agreement do not have such clause then you can not convert unsecured loan amount in to share capital autometically.

Regards

thank you sir.

Generally in Private Limited Company when unsecured loan is received from its share holders/ Promoters no agreement is entered into in most of the cases.

Even in the absense of agreement, unsecured loan can be converted in equity share capital if both shareholder and company agree to the same. There are no issues for the same.

On the safer side you should get a share application forms filled and signed from that shareholder and pass resolution for conversion of USL into share capital.

Thanks

“RESOLVED that the following persons who have applied for 400000 Equity Shares of Rs. 10.00 each (Fully paid up) with a premium of Rs. 40.00 per share, and in regard to allotment of shares their loan account debited in respect of allotment amount of Rs. 2,00,00,000.00 (Rupees Two Crores only), be and are hereby allotted Equity Shares :

“FURTHER RESOLVED THAT in relation to the allotment of shares made by the Company, Shri ABC, Director of the Company be and is hereby authorised to file the return of allotment with the Registrar of Companies.”

Pls note you will have to file form 2 and form 3 within 30 days of allotment at the office of ROC.

Hi

I agree with Neha mam, ......

In Kumaran Potty V. Venad Pharmaceuticals & Chemicals Ltd., [1996] 2 Comp. L.J. 288 (Ker), it was held that to become a shareholders there must be an agreement in writing under section 41 of the Companies Act. It was held that the amount was nothing but a loan and it will always remain a loan.

Regards

While I agree that unsecured loan can be converted into share capital on the basis of application for shares and Board resolution, consideration for allotment will still be considered as cash only and hence Form 3 is not applicable in this case.  Form 3 is applicable only when shares are allotted for other conisderation such as purchase of fixed assets.

Limited Company has received intercorporate deposit from Pvt Ltd company.

Now the company wants to issue equity shares against the unsecured loan.

Is it permissibale, what are the steps and the procedure.

Regards.

Yes, you can allot shares against lnter corporate deposit / USL.

You have to File form 2 and form 3 in this case.

hello

I wanted to know whether a private limited company could convert its loan received from  bank into shares?? what is the procedure

Can any tell applicability of sections of companies act in this regard.

What are the compliances? 

For increase in share capital and increase in authorised share capital.

Procedure for increase in authorised capital of the company

Section 95 of the Companies Act, 1956 provides that a company having share capital shall give notice to the Registrar of Companies for alteration in share capital in e-Form 5 electronically within a period of 30 days from the date of the resolution passed by the company for alteration in share capital.

1.                  Convene a Board Meeting after issuing notices to the directors of the company to decide about the increase and to fix the date, time, place and agenda for convening a General Meeting.

2.                  To pass an Ordinary Resolution (Special Resolution if so required by articles) for the same.

3.                  Download Form -5 from www.mca.gov.in

4.                  Fill the details required such form except signature of the concerned person.

5.                  Opt the option to pay stamp duty electronically along with ROC fee on Form-5 with concerned ROC.

6.                  Please attached altered MOA and AOA with the Form-5 filed with concerned ROC .

7.                  File  MOA along with stamped form-5 with concerned ROC (if required).

8.                  After approval of Form-5 from ROC make necessary changes in MOA and AOA and in all other papers and documents.

If you are increasing Authorised Capital by Special Resolution or also change in Article of Association it is required to file Form 23 with concerned ROC within 30 days from the date of passing such resolution.

Any increase in the authorized share capital would come into effect immediately on passing of any valid resolution in this behalf, and filing of the requisite Forms 5, 23, being a ministerial act and procedural in nature, would not influence the date of increase of the authorized share capital. [Kobian (P) Ltd. v Kobian India (P) Ltd. and Others (2005) 64 CLA 281 (CLB)].