The Process of conversion of loan into equity is an easy and practical method to raise capital without immediate investments. For Conversion of Loan into Equity Companies is required to comply with provisions of section 62(3) of the Companies Act, 2013.
Phase-1 : Compliance before issue of Debentures or acceptance of Loan
Company shall pass a Board Resolution (BR) in Board Meeting for issue of Debentures or acceptance of Loan and for conversion of such Loan / Debenture into Equity share Capital and to approve notice for calling of Extra Ordinary General Meeting.
Company shall pass Special resolution (SR) for conversion of such loan/ Debenture into Equity share capital of Company in Future i.e before receipt of loan.
File E-form MGT-14 within 30 days of passing the special resolution with the ROC.
Company shall enter into an agreement conversion of such Loan or Debenture into Equity share capital of Company in Future
Phase-2: Compliance at the time of conversion of Debenture / Loan into share capital:
Pass Board Resolution for Allotment of Equity Shares and prepare a list of allottees.
Filing of e-form PAS-3 along with following attachments for allotment of Shares within 30 days of passing of board Resolution.
BR for Allotment
List of Allottees
Copy of SR passed at the time of issue of Debentures or acceptance of Loan.
Issue Share Certificates in Form SH-1 to allotees upon passing of board Resolution for the same.
Note: If Company not file e-form MGT 14 within 300 days from the date of passing of Special Resolution.
Compounding for Condonation of Delay → File e-form CG-1 with MCA along with following Documents :
Application for Compounding
Copy of SR for conversion of such loan/ Debenture into Equity share capital
BR to file the e-form CG-1 with MCA
→ After hearing, MCA will issue order for Compounding. → After payment of fees for Compounding, the Company shall file the order in e-form INC-28 along with following Documents
Copy of Order
Copy of Challan of Payment of fees for Compounding.
Than Company shall file MGT-14 along with following attachment:
Copy of Order
Copy of SR for Conversion of loan/ Debenture into Equity share capital.
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