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Conversion of loan from director to share capital

anonymous (proprietor) (237 Points)

22 August 2014

a private limited company has accepted loan from its directors under companies act, 2013 (undertaking taken that the amount borrowed are from own funds of the directors). the same funds are utilised by the company. now the company wants to issue share against the loan received from the directors under private placement (along iwth other investors). my query is that what is the procedure for conversion of loan to share application money. also since the money is received before the offer is made for private placement, won't it be a violation of the relevant provisions of the companies act, 2013.

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3 Replies

Vandana J Doshi (Practising Company Secretary) (12562 Points)
Replied 23 August 2014

Write a letter to the director offering him the same......if and when the director approves and provides the share application money, transfer the loan amount to the share application account created under private placement process.....thereafter follow the pvt placement process and allot the shares to the director.

anonymous (proprietor) (237 Points)
Replied 23 August 2014

The loan provided by the directors already utilised by the company. so you are suggesting that the company sends an application letter for allotment of shares under private placement to the director who has provided the loan and on his consent transfer the money to share application account merely by a book entry (as the loan money has already been utilised)

Vandana J Doshi (Practising Company Secretary) (12562 Points)
Replied 25 August 2014

Hi, merely transfer by way of book entry will not suffice....you have to make arrangements for actual transfer of the amount........even if it is utilised, have to transfer the amount somehow......