Provisions of Companies Act,1956 for Conversion of Loan into Equity Share Capital
For the increase in the subscribed capital there are two requirements which a company have to follow
1. Terms and conditions approved by Central Government.
2. Issuance is according to Public Companies (Terms of Issue of Debenture raising of loans with the option to convert such debentures or loans into shares) Rules, 1977.
Provisions of Companies Act, 2013 for Conversion of Loan into Equity Share Capital
1. No need to fulfill any requirements as stated in The Companies Act, 1956
2. Only passed Special Resolution in general meeting for approval of Shareholders.
Procedural Part:
Before Issue of Debenture or Acceptance of Loan
1. To pass Board Resolution at the Board Meeting
2. To issue the notice of General Meeting
3. To pass Special Resolution in EGM
4. File Form MGT-14 within 30 days of the passing of Special Resolution with ROC.
At the tie of conversion of Debenture or Loan into share capital
5. To pass Board Resolution for Allotment of Equity Shares
6. Prepare the list of Allottees
7. File a Form PAS-3 within 30 days of the passing of Board Resolution for allotment of equity shares.
FAQ
1. If any company accepted loan before 1st April 2014 (As per Companies Act, 1956) and wants to convert loan/debentures into Equity shares at present. Whether it is possible?
NO company can’t convert such loan into shares according to section-62 of Companies Act, 2013 EXCEPT If company passed the special resolution at the time of acceptance of loan/ debenture.
Board Resolution
RESOLVED THAT Pursuant to section 62 and other applicable provisions of the Companies Act, 2013 Board of the company be and is hereby give assent to issue and allotment of________ Equity shares of face value of Rs. __ at a price of Rs. _____________ (Inclusive of Premium of Rs. __ per share) each in lieu of and against the conversion of loan or debenture of Rs. _______ taken by company.
FURTHER RESOLVED THAT the new equity shares shall rank pari passu in all respects with the existing shares of the company.
FURTHER RESOLVED THAT for the purpose of giving effect to this Resolution, Mr.__________ Director of the company is and hereby authorized to do all things, deeds, matters, and things regard to issue and allotment of new equity shares.
Special Resolution
RESOLVED THAT Pursuant to section 62 and other applicable provisions of the Companies Act, 2013 Board of the company be and is hereby give assent to issue and allotment of________ Equity shares of face value of Rs. __ at a price of Rs. _____________ (Inclusive of Premium of Rs. __ per share) each in lieu of and against the conversion of loan or debenture of Rs. _______ taken by company.
FURTHER RESOLVED THAT the new equity shares shall rank pari passu in all respects with the existing shares of the company.
FURTHER RESOLVED THAT for the purpose of giving effect to this Resolution, Mr.__________ Director of the company is and hereby authorized to do all things, deeds, matters, and things regard to issue and allotment of new equity shares.
Explanatory Statement
In order to meet the financial requirements of the Company, it is proposed to issue further capital for strengthening the financial position of the Company by accepting loan/issue of debenture which was approved by the Board of Directors on _____________. The Company has provided Rs. ________ Crores (Rs. ____________ only) as unsecured loan or in term of debenture to the general public.
It is, therefore, proposed to authorize the Board of Directors of the Company to issue and allot equity shares to debenture holders or creditors on the same terms and conditions as applicable to all other shareholders of the company pursuant to the acceptance of loan or issuance of the debenture.
Pursuant to the provisions of Section 62 of the Companies Act, 2013 the above proposal requires the approval of the members of the Company by way of Special Resolution. The Board commends your approval by way Special Resolution for allotment of shares on rights basis as required by section 62 of the Companies Act, 2013.
None of the Directors and Key Managerial Personnel of the Company or their respective relatives is concerned or interested in the passing of the Resolution.
Author Bio
First, the Board should approve raising of Loan with a right confirmed to the Lenders, to convert such loan into equity shares on such price and upon such conditions as may be agreed in between the Company and the Lenders;
Therefore, a meeting of the shareholders must be convened to approve such loan with right of conversion to the Lenders, by a Special Resolution
Then MGT 14 to be filed;
The Board thereafter should accept such Loan
Upon exercise of option by the Lenders
1. Only Board will able to issue such number of shares as previously approved by the Shareholders in Special Resolution;
2. To file PAS- 3 upon allotment
3. There must be attached with PAS 3 , the copy of SPL RESOLUTION, Copy of Agreement and list of allottees and the Board Resolution for allotment of shares
could yo please provide me with a sample resolution for conversion of debenture to loan.