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Conversion of unsecured loan into equity share capital

CS Final and CA inter


A Private Limited Company has received unsecured loans from its share holders/ Promoters. Amounted Rs. 34 Lakhs.

Now It wants to issue Equity Shares of  Rs. 9 Lakhs out of Rs. 34 Lakhs of unsecured Loan.

Balance of Rs. 25 Lakhs out of Rs. 34 Lakhs of Unsecured loan is going to be treat as Security premium for above mentioned Equity shares issue.

For this purpose that company what meeting should conduct to pass the resolution for the above activity?

Is this is possible to do. if yes means what are all the procedures to follow?

Any changes require in Memorandum and Articles?

Unsecured loan is showned on last year Balance sheet.

 

Please kindly help me to sort out the above issue.

 

 

 

 
Reply   
 
Company Secretary


Hi

 

Forst of all you check, whether the agreement of loan with shareholder has given such clause of conversion of unsecured loan in to share capital. If agreement do not have such clause then you can not convert unsecured loan amount in to share capital autometically.

 

 

Regards

 
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CS Final and CA inter


thank you sir.

 
Reply   
 
Company Secretary


Generally in Private Limited Company when unsecured loan is received from its share holders/ Promoters no agreement is entered into in most of the cases.

 

Even in the absense of agreement, unsecured loan can be converted in equity share capital if both shareholder and company agree to the same. There are no issues for the same.

 

On the safer side you should get a share application forms filled and signed from that shareholder and pass resolution for conversion of USL into share capital.

 

Thanks

 

 

 
Reply   
 
Company Secretary


“RESOLVED that the following persons who have applied for 400000 Equity Shares of Rs. 10.00 each (Fully paid up) with a premium of Rs. 40.00 per share, and in regard to allotment of shares their loan account debited in respect of allotment amount of Rs. 2,00,00,000.00 (Rupees Two Crores only), be and are hereby allotted Equity Shares :

 

SR. NO.

NAME OF ALLOTTEE

ADDRESS

OCCUPATION

NO. OF SHARES ALLOTED

AMT. PER SHARES

(in Rs.)

           

 

 

“FURTHER RESOLVED THAT in relation to the allotment of shares made by the Company, Shri ABC, Director of the Company be and is hereby authorised to file the return of allotment with the Registrar of Companies.”

 

 
Reply   
 
Company Secretary


Pls note you will have to file form 2 and form 3 within 30 days of allotment at the office of ROC.

 
Reply   
 
Company Secretary


Hi

 

I agree with Neha mam, ......

 

In Kumaran Potty V. Venad Pharmaceuticals & Chemicals Ltd., [1996] 2 Comp. L.J. 288 (Ker), it was held that to become a shareholders there must be an agreement in writing under section 41 of the Companies Act. It was held that the amount was nothing but a loan and it will always remain a loan.

 

 

Regards

 
Reply   
 
Vice President (Corporate)

While I agree that unsecured loan can be converted into share capital on the basis of application for shares and Board resolution, consideration for allotment will still be considered as cash only and hence Form 3 is not applicable in this case.  Form 3 is applicable only when shares are allotted for other conisderation such as purchase of fixed assets.

 

 

 

 

 
Reply   
 
Company Secretary


Form 3 will be applicable since we are converting loan into share capital.

 
Reply   
 
Company Secretary


Originally posted by : suresh karthick


A Private Limited Company has received unsecured loans from its share holders/ Promoters. Amounted Rs. 34 Lakhs.

Now It wants to issue Equity Shares of  Rs. 9 Lakhs out of Rs. 34 Lakhs of unsecured Loan.

Balance of Rs. 25 Lakhs out of Rs. 34 Lakhs of Unsecured loan is going to be treat as Security premium for above mentioned Equity shares issue.

For this purpose that company what meeting should conduct to pass the resolution for the above activity?

Is this is possible to do. if yes means what are all the procedures to follow?

Any changes require in Memorandum and Articles?

Unsecured loan is showned on last year Balance sheet.

 

Please kindly help me to sort out the above issue.

 

Unsecured Loan can be converted into Share Capital.

This can be done by passing Board Resolution.

 

As far as question of E-Form is concerned only E-Form 2 Shall be filed.

E-Form 3 is filled where a contract was made into between some person and company but not reduced into writing and that contract too relates to sales, services etc. and not to Loan!!

 
 

 


 


 
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