Conversion of loan into Share Capital as per the Provisions of CA, 2013
As per the provisions of Companies Act, 2013, Companies have option to convert its Loan into Share Capital Under Section 62(3) of CA, 2013.
Extract of Section 62(3) of Companies Act, 2013 :
Company has to follow the detailed procedure to convert the loan into Share Capital as discussed here below, but before conversion process, there is a specific condition needs to be complied with at the time of taking of loan.
Loan can be converted only if Special Resolution is passed at the time of taking of loan for the terms of conversion of loan. Even in Loan Agreement, Terms relating to Conversion must be mentioned therein.
As per Section 117(3) of CA, 2013, MGT-14 is to be filed for Every Special Resolution passed by every Company. Consequent upon which, At the time of taking of loan, SR is required to be passed, therefore, Filing of MGT-14 is a mandatory compliance.
To conduct the Board Meeting and Extra-Ordinary General Meeting, SS-1 and SS-2 is to be complied simultaneously.
Process of Conversion of loan :
The next step is to incorporate the process of conversion as and when decided by the Board or as mentioned in the Loan Agreement:
Query : When can Company not convert loan into Share Capital ?
Solution : Company Can convert its loan into Share Capital only when it has taken Members’ approval by passing Special Resolution at the time of taking of loan. Otherwise, it can’t convert its loan into Capital.