Conversion of director loan in equity shares

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Ashish Sharma (Service) 03 December 2014

What is the Proceedure to covert the Director loans taken prior to application of Compnies Act 2013 in Equity Share Capital in Private Limited company as no SR passed at that time for any terms of loan as required in section 62(3) of companies Act, 2013

Is there any simple way to convet them in Equity Shares or we need to follow the private placement.

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P C Agrawal (Vice President (Corporate)) 03 December 2014

1) First decide type of issue - rights issue u/s 62(1)(a) or private placement / preferential allotment u/s 62(1)(c). Rights issue is simpler one and we have to file 2 returns with ROC whereas private placement is tedious and we have to file 4 returns with ROC besides keeping funds in separate bank account till allotment. In rights issue offer can be made to all shareholders but even one shareholder can accept the same.

2) Pass Board resolution for issue of shares and approve letter of offer.

3) Refund loan to the director by cheque and take cheque from the director/shareholder towards share application money. If accounts of both the parties are in the same bank, both cheques can be cleared on the same day against each other even without funds.

4) Pass Board resolution for allotment.

Section 62(3) will not be applicable in this case since it is not conversion of loan into equity.