Draft Resolution for Conversion of Loan Into Equity


Draft Resolution for Conversion of Loan Into Equity

RESOLVED THAT Pursuant to section 62 and other applicable provisions of the Companies Act, 2013 consent of the Company be and is hereby accorded to the issue and allotment of ..... equity shares of Rs.10 each to ........, at a premium of Rs..... per share credited as fully paid up, in lieu of and against conversion of part of the rupee loan to the extent of Rs…… taken by the Company from ......;

FURTHER RESOLVED THAT The new equity shares shall rank pari passu in all respects with the existing equity shares of the Company except that, they shall only rank for dividend in the year of allotment pro rata from the date of such allotment upto the end of the Company's financial year next following;

FURTHER RESOLVED THAT For the purpose of giving effect to this Resolution, the Board of directors of the Company be and is hereby authorised to do and perform all such acts, deeds, matters and things as they may in their absolute discretion deem necessary, desirable or appropriate to settle any question, difficulty or doubt that may arise in regard to the new equity shares as they may think fit."

Important Points To Consider ;

  • A company is allowed to issue shares for consideration other than cash such as assets, debts owed by the company [DCAs Letter No.8/32/(75)/77 CL-V, dated 13-3-1978] or immovable property.
  • The allotment of shares by company to a person in lieu of a genuine debt due towards him is in perfect compliance with the provisions of section 75(1) of the Act. [Department's Letter No. 8/32(75)/77-CL-V, dated 13March, 1978]
  • Where the consideration for allotment of shares is actual cash then only the allotment would be cash. 'Cash' is actual money or instruments, e.g. cheques which are generally used and accepted as money. [Letter No.8/4/(75) 69-CLV, dated 18 November, 1969]
  • Conversion of loan into equity arises out of a contract. Option for conversion can be attached to a loan only with the approval of members by way of special resolution and the Government.
  • The Company shall not show in the return of allotment any shares allotted for cash if cash has not actually been received in respect of such allotment.

Related Post ;

Draft Board Resolution for Allotment of Shares for Consideration Other Than Cash

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