Conversion of Loan into Equity
Any company can convert loans into share capital of company under companies act 2013 (except loan taken and debenture issued to government company)
Provisions under Companies Act, 2013
- Provisions of Section- 62 doesn’t required to follow in this situation
- Special Resolution required filing at the time of issue of Debenture and Loan.
Procedure followed by Companies
- If a company issue Debenture or take loan with the condition to convert such loan and debenture into Shares in future then company has to pass a Special Resolution at the time of accepting of Loan and issue of Debentures. {Proviso of subsection 3 of Section 62}
- File form MGT-14 for submission of Special Resolution with ROC within 30 days of passing the resolution with terms if anything defined
- Terms should be attached to the Debenture and Loan for conversion into Capital in future.
- No need to follow the process given u/s 62 for issue of shares.
RELEVANT SECTIONS OF THE COMPANIES ACT, 2013: Section 62(3) states about the provisions of conversion of loan into equity.
Section 62(3) nothing in this section shall apply to the increase of the subscribed capital of a company caused by the exercise of an option as a term attached to the debentures issued or loan raised by the company to convert such debentures or loans into shares in the company. Provided that the terms of issue of such debentures or loan containing such an option have been approved before the issue of such debentures or the raising of loan by a special resolution passed by the company in general meeting. Therefore, for conversion of loan into equity it must be noted that the company has accepted the loan on such terms and conditions that the loan will be converted into share capital anytime in future. For this purpose, special resolution has been passed by the company at the time of acceptance of such loan.PROCEDURE FOR CONVERSION OF LOAN INTO EQUITY-
STEP 1: HOLDING OF BOARD MEETING: A Company shall convene a board meeting by giving 7 days’ notice where following agenda to be approved-- Resolution for acceptance of loan
- Resolution of conversion of these loan into equity
- Issuance of notice for convening of Extra-ordinary general meeting