Conversion of preference shares into equity shares

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Swati Hegde

Company Secretary

33 Points Posted on 03 December 2014

Pls help in tackling this practical issue:

A private Limited Company has total authorized share capital of Rs.10 Cr out of which Rs. 7 Cr is Equity and Rs. 3 Cr is Prefernce Shares. It has paid up equity share capital of Rs. 9 Cr and Paid up preference share capital of Rs.2.5 Cr.

Now it is proposed to convert preference share capital in to equity share capital which needs increase in authorized equity share capital.

Now, my question is, can we do it without increasing the limit of authorized equity share capital? Is it possible to club the authorized preference shares with authorized equity shares by conducting EGM and filing form SH-7 under conversion head? (Even though the authorized preference share capital includes both unissued and issued)?

And after such clubbing of authorized share capital, is it possible to covert paid up preference into equity by filing PAS 3 (Earlier form 2) though there is no such authroized preference shares after clubbing with authorized Equity Shares.

I feel it can be done at the same EGM. And Pls suggest, if any practical difficuly which may be faced ehile filing relevant forms as it is a "chicken and egg cycle" situation.

Pls suggest on priority.

Replies (3)

P C Agrawal

Registered independent director Past Ch

5233 Points Posted on 04 December 2014

1) How your existing paid up capital can exceed existing authorised capital?

2) Yes, unissued preference shares can be cancelled and simultaneously new equity shares can be created by passing ordinary resolution in GM and filing SH-7.

3) Paid up preference shares can be converted into paid up equity by following procedure u/s 48.

Swati Hegde

Company Secretary

33 Points Posted on 04 December 2014

1) We wish to convert our paid preference shares into Equity shares. On such conversion, it will exceed the existing Equity Authorized capital. Thus, there is a question of increasing authorized equity capital.

2) Since it is required to pay huge stamp duty on such increment, we are planning to club authorized Preference with Authorized Equity.

3) Now. the major question is, can we club authorized preference with authorized equity, eventhough the authorized preference shares includes both issued and unissued portion.? In my example given above, can total Rs. 3 Cr authorized preference shares (include Rs.2.5 cr paid up) be clubbed with Rs.7 Cr authorized Equity Capital and thereby increase up to Rs. 10 Cr Equity authorized Capital?

So that we will have sufficient limit for Equity capital though we convert Rs.2.5 Cr paid Preference Shares into Equity Shares.