Conversion of Loan into Equity Under Companies Act, 2013 By Ekta Pandey

In order to convert the loan into share capital, as per provisions of section 62(3) of the Companies Act, it is mandatory that the Company has taken a loan on the terms that the loan can be converted into equity share capital and such option has been approved by special resolution before taking of loan.
Procedure for accepting the loan:

  1. Hold a Board Meeting by giving a notice to all the Directors of the Company of not less than 7 days;
  2. Pass a Board Resolution in that Board Meeting for acceptance of such loan;
  3. Execute a loan agreement on the necessary terms and conditions;
  4. It should be noted loan agreement must contain the clause of having an option for conversion of such loan into equity.
Obtain approval by shareholders in the General Meeting for the option of conversion of loan into equity as mentioned in the agreement:
  1. Hold an EGM of members by giving notice not less than 21 clear days;
  2. Pass a special resolution in the Extra Ordinary General Meeting for approval of such option of conversion;
  3. File E-form MGT-14 within 30 days of passing the special resolution with the ROC;
Conversion of Loan:

  1. Pass a Board Resolution for allotment of equity shares;
  2. Prepare a list of allottees to whom the equity shares in lieu of such convertible loan have to be issued;
  3. File e-form PAS-3 with the ROC within 30 days of passing the Resolution by the Board of Directors of the Company.

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