Conversion of director loan to equity

This query is : Resolved

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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)
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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

Aashok Kumar Sharma

(Expert)
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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)
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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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