conversion of loan in to equity

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Pravin

Associate

127 Points Posted on 05 November 2009

Pls Advise

We have on pvt. ltd. co. to be wound up. Latest balance sheet shows following position

1. Share Cap - 1,00,000

2. Unsecured Loan - 36,00,000

3. Cash & Bank Bal - 100000

4. P & L Dr. Bal - 36,00,000

One view was presented by the auditor is that the secured loan is to be converted in to equity by issuing shares at premium (FV- 10).

My question is that is it possible to issue share at premium against unsec. loan (from director)

and if it done so sec. premium will be generated (with premium amt) and distribution of anything to the shareholder at the time of winding will it regarded as dividend us 2 (22) of income tax act and company is required to pay the dividend tax ?

or any other way to wind up the company

Replies (2)

ERRIC

46 Points Posted on 05 November 2009

There is no bar for conversion of loan into share capital.You are required to obtain a reuest letter from the lender of loan.call a Board meeting and pass a resolution and file Form-2.In case there is a Shareholders Agreement or some other restriction, you are to comply with the same.

Pravin

Associate

127 Points Posted on 09 November 2009

My Quesion is that

After converting the loan in to equity, a security premium will generated. Management want to wind up the company. Credit balance of sec. Premium will be distributed among the shareholders.

Will sec. 2(22) (b) Deemed Dividend of Income Tax will be applicable ?