Dear Experts,Before three years, we had raised a loan from directors of the company without any con…
Dear Experts,
Before three years, we had raised a loan from directors of the company without any conditions of conversion. Now, the company wishes to convert a loan into share capital.
Can a company convert its loan into equity share capital? If yes, what are the procedures to convert a loan into share capital?
There is a practice that many companies convert their loan into share capital to use their funds in investment instead of paying loan.
The following are the steps that you need to convert loan into share capital.
Step 1: Shreholder should approve the issue of convertible loan or debenture by passing special resolution.
Step 2: Form MGT-14 has to be filed with registrar within 30 days of such resolution.
Step 3: At the time of conversion, special resolution has to pass to allot shares. You have to file PAS-3 with registrar after the allotment of shares.
Step 4: Issue share certificate by passing board resolution.
So shareholders approval is required before acceptiong convertible loan by the company.
In your case the company took loan without conversion clause. It means a loan is inconvertible. Therefore, company can not issue equity in respect of such loan.
