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CONVERSION OF LOAN INTO SHARE CAPITAL AND RIGHT ISSUE

CONVERSION OF LOAN INTO SHARE CAPITAL AND RIGHT ISSUE

CONVERSION OF LOAN INTO SHARE CAPITAL AND RIGHT ISSUE

CONVERSION OF LOAN INTO SHARE CAPITAL AND RIGHT ISSUE

Conversion of Loan into capital[Sec 62(3)

Sec 62(3) states if company takes a loan on the term that loan will be converted into share capital & such an option have been approved before raising of loan by a special resolution, subscribed capital can be increased.

Procedure for conversion of loan into shares:

i. Approve terms of loan by passing special resolution before taking of loan & file special resolution in E-Form MGT14 within 30 days.

ii.  Convert loan into shares by passing resolution in Board Meeting & File Eform PAS3 for allotment of shares within 30 days.

iii.  Also issue share certificate by passing Board resolution & file Eform MGT 14 within 30 days for issue of shares.

Right issue is also a simple process

A Pvt Ltd is having two members, Mr A & Mrs A. Co wants to raise Rs 2 Lakhs by issue of equity shares.  Mr A & Mrs A do not want to invest further. Even Mrs A wants to sell some shares. However, Mr C wants to invest in the Company.  It is very costly & complex for company to follow preferential allotment provisions. Mr C purchases 100 shares from Mrs A. Now , company have 3 members: Mr A, Mrs A & Mr C. Company comes with right issue, the process of which is very simple i.e. by calling a Board meeting , without any minimum application amount per applicant, without opening a separate bank a/c, without valuation report & without need to pass SR in general meeting. Mr A & Mrs A renounced right in favour of C & company able to raise fund easily.

Relevant Provisions

Sec 62. (1) Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered—

(a) to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely:—

(i) the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;

(ii) unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause (i) shall contain a statement of this right;

(iii) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not dis-advantageous to the shareholders and the company;

(2) The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be despatched through registered post or speed post or through electronic mode to all the existing shareholders at least three days before the opening of the issue.

 CONVERSION OF LOAN INTO SHARE CAPITAL AND RIGHT ISSUE

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1 comments
  1. Purva Mehta says:

    are there any changes in the procedure for conversion of unsecured loan into equity if I have taken unsecured loan before 2014, as per companies act 2014 and compaines act 1956

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