Roc - conversion of unsecured loan to equity

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Querist : Anonymous

Querist : Anonymous (Querist)

17 January 2015 Hi, what is the ROC procedure for converting unsecured loan from promoter / director into equity for pvt company, pl provide the details in this regard.

Querist : Anonymous

Querist : Anonymous (Querist)

20 January 2015 Hello, request any response for the query

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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22 July 2025 Here's the typical ROC procedure and compliance for converting unsecured loan from promoter/director into equity shares in a Private Limited Company in India:

ROC Procedure for Conversion of Unsecured Loan to Equity
Board Meeting:

Convene a Board Meeting to approve the proposal of conversion of unsecured loan into equity shares.

Pass a Board Resolution approving the conversion, issue of shares, and related matters like allotment date, share price, etc.

Shareholders’ Approval (if required):

Check the Articles of Association (AOA) and Companies Act provisions for any requirement of shareholders’ approval for allotment.

Typically, in private companies, Board approval suffices unless the AOA or agreements require shareholder approval.

Valuation of Shares:

If shares are issued at premium, obtain a valuation report from a registered valuer to determine the fair price of shares.

Share Allotment:

Issue and allot equity shares to the promoter/director against the unsecured loan amount.

Prepare Share Allotment Letter and update the Register of Members.

Filing with ROC:

File Form PAS-3 (Return of Allotment) within 30 days of allotment.

File Form SH-7 (if there is an increase in Authorized Share Capital, due to conversion) within 30 days of allotment.

Update the Register of Members and Register of Charges if applicable.

Adjustment of Loan Account:

Adjust the loan amount in the books of accounts accordingly.

Important Points:
No fresh funds are received, so no need to file for capital receipt (like Form CHG-1 for charge creation).

Share certificate to be issued to the promoter/director post allotment.

Ensure compliance with Section 62(3) of the Companies Act, 2013, which deals with allotment of shares other than cash consideration.

Maintain proper documentation for audit and statutory purposes.

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