Conversion of director loan to equity

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Discussion relates to a Pvt Ltd company converting a 9 lakh director unsecured loan into equity. It queries whether valuation is required without a loan agreement. It also touches on compliance, preferential allotment rules, ROC filings, and applicability of valuation for share/debenture issuance.

shinu

shinu (Querist)

07 April 2026 A small pvt ltd company incorporated in 24-25,the director has brought funds to meet the expenses and it stood as unsecured loan,noe including financial year 25-26 it ended upto 9 lakh now the director want to increase the capital by converting loan to sharecapital.pls guide no loan agreement was entered,so whether valuation mandatory?

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

07 April 2026 • Conversion of director loan → equity is allowed
• Valuation is legally required (preferential allotment)
• No loan agreement = manageable but document properly
• Watch for:
• Section 56(2)(viib)
• Section 68 scrutiny
• Follow proper ROC process (MGT-14 + PAS-3)

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shinu

shinu (Querist)

14 April 2026 ok sir,suppose the newl incorporated on dec 31,2025,it need to issue share for outsder and also debenture issue.can u guide?valuation needed in this case?

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