Unsecured loans and investments - private ltd company

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TARIQUE RIZVI (Querist)

05 October 2016 What is the difference between the unsecured Loans and Investments ? The issue is related with a pvt ltd company. Can the unsecured loan be transferred into investment and what is the procedure ?

Anand

Anand (Expert)

06 October 2016 An investment refers to purchase of an asset which is expected to give returns. The returns may be fixed (rentals on property), intermittent (dividend on shares/mf), or in the form of capital appreciation (property, shares) Typically in an investment, the person becomes the OWNER of the asset involved and is entitled to have all the incomes therefrom and is also liable for any expenses arising on it.
A loan, on the other hand is the lending of money for a fixed term at a pre-decided rate of interest. in some cases no interest may be charged. The loan can be secured by a security of the lendee, such as immoveable property, stocks, traded goods etc. in the event of default of repayment, the lender can then seize these securities and auction them off to pay off the loan. Unsecured loans are loans which do not have an underlying security given to the lender.

To address your query, an unsecured loan cannot be shown as an investment. Both are assets for the investor/lender but one is ownership of asset and the other is ownership of money lent which is expected to be received back.
one of the way the loan can be converted into investment is if the person who has borrowed it issues shares in his company or a stake in his entity in lieu of the loan. only then the character changes from a loan to xyz to investment in xyz

TARIQUE RIZVI

TARIQUE RIZVI (Querist)

16 October 2016 Whatever unsecured loans the share holders of the company have given to the company whether can be converted into further share investment. Can we do it through JV or first of all the share holders should recover their unsecured loan by cheque and later should purchase further shares on account of share investment ?

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