Loan to equity..

Loan to equity..

Pvt companies:

First by entering into a Loan Conversion Agreement between the Creditors and the Company and then by simply passing a Board Resolution, and after that filed Form 2 with ROC

Public companies:

Loan can be converted into equity shares provided; the terms of the loan give an option to convert such loans into shares of the company. Such terms and conditions must be in conformity with the rules made by the Government for this purpose before raising of such loans. 

The proposal must be approved by the *special resolution* passed by Company at the general meeting before raising of the loan. For this purpose, the Central Government has framed the *Public Companies (Terms of issue of debentures and raising of loans with option to convert such debentures or loan into equity shares) Rules, 1977*. To be concise, the rules say as
under: 

1.     The debenture or loan is raised or issued either through private subscription or through issue of the prospectus to the public. 

2.     The financial institutions specified for this purpose either underwrite or subscribe to the whole or part of the issue of debentures or sanction the raising of loan. 

3.     Having regard to financial position of the company, the terms of issue of debentures or terms of loan (e.g. rate of interest payable on debenture and loan the capital of the company, its liabilities and its profits during immediately preceding five years and the current market price of shares of the company), the conversion must be either at par and or at
premium not exceeding 25 percent of the face value of the shares. 

Listed companies:

Public company rules will apply and provisions of SEBI Takeover Code might be triggered