Deposits

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Varsha

29 Points Joined March 2017

Can unsecured deposits from shareholder be converted into equity later if the special resolution for the same was passed in general meeting prior to the acceptance of deposits as per section 62(3) of Companies act 2013.Actually in the section the term used is loan not deposits, so can we convert deposits also into equity.Please Advice.

Replies (2)

priyanka chowdhary

cwa

90 Points Joined March 2013

Basically pursuant provisions of Section 62(3) of the Companies Act 2013 the unsecured loans can be converted in to share capital.

But at the time of obtaining the loan it should have been approved by special resolution mentioning terms & conditions that the loan shall be converted in to equity capital at a future date.

If that special resolution was not passed by your company at the time of obtaining loan, the same cannot converted under section 62(3).

Regarding treating the loan as Deposit :Recent MCA circular no 5/2015 dated 30.03.2015 clarified that amounts received by private companies from their members, directors or their relatives prior to 1st April, 2014 shall be considered as deposits under the Companies Act, 2013 such amounts received by private companies prior to 1st April, 2014 shall not be treated as 'deposits' under the Companies Act,2013 and Companies (Acceptance of Deposits) Rules, 2014 subject to the condition that relevant private company shall disclose, in the notes to its financial statement for the financial year commencing on or after 1st April, 2014 the figure of such amounts and the accounting head in which such amounts have been shown in the financial statement.

Regarding conversion of share application money in to Equity you may check MCA Companies (Acceptance of Deposits ) Amendment Rules 2015 dated 31.03.2015 Amendment made to Rule 2(1) (c) (vii) (a).

Jatin Bajaj

2942 Points Joined April 2016

If the Company at the time of receipt of the Loan from Directors or any of the members has passed special resolution , that such loan can be converted into equity share capital in future , then it is possible to convert such Loan into Equity Share capital.

Following documents are required

Company should have passed special resolution at that time for conversion of Loan into equity

company should have filed MGT 14 within 30 days of passing Special Resolution

Company has passed Board resolution for approval of Loan into Equity

File MGT 14 for issue of shares

file PAS 3 for allotment of shares.

But if special resolution has not been passed at time of receipt of Loan by the Company , then the above procedure cannot be followed and it is not possible to convert Loan into Equity