{"id":4734,"date":"2020-03-10T13:00:13","date_gmt":"2020-03-10T07:30:13","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=4734"},"modified":"2020-12-11T15:46:57","modified_gmt":"2020-12-11T10:16:57","slug":"conversion-of-debentures-into-equity-shares","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/conversion-of-debentures-into-equity-shares\/","title":{"rendered":"Conversion of Debentures into Equity Shares: Step by Step Guide"},"content":{"rendered":"\n<p class=\"has-drop-cap\">In\na simple sense, the Conversion of Debentures into Equity Shares means to change\nthe loan liability into a capital liability. After the Conversion of Debentures\ninto Equity Shares, the Debenture Holder becomes Shareholder.&nbsp; The shareholders will get the right to vote. After\nConversion, until Liquidation occurs in the Company, the money invested by\nshareholders will not be refunded back to the shareholders. In this article, we\nwill discuss Procedure followed for Conversion of Debentures into Equity\nShares.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What\nare Debentures and Equity Shares?<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">Debentures<\/h3>\n\n\n\n<p>The long term loans of a Company are known as Debentures. It is a loan which should be repaid on a specified date. The rate of interest of the Debentures is fixed<strong><em>. Section 2(3) of the Companies Act, 2013 defines Debentures<\/em><\/strong>. The definition states that the Debenture includes stocks and bonds or any other instrument of a company evidencing the debt, whether constituting a charge on the assets of the Company or not. The benefit of having Debentures in the Company is that they have lower interest rates than other types of loans. There are two types of Debentures:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"550\" height=\"301\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-26.png\" alt=\"Debentures and Equity Shares\" class=\"wp-image-4735\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-26.png 550w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-26-300x164.png 300w\" sizes=\"(max-width: 550px) 100vw, 550px\" \/><\/figure><\/div>\n\n\n\n<p><strong>Convertible\nDebentures<\/strong><\/p>\n\n\n\n<p>These\ninstruments can be converted into equity shares of the Company who issued them.\nThe Conversion can be done after a predetermined period. These instruments are\nalways favourable to the investors as they can at any time; convert these\nconvertible bonds into equity shares. The lower interest rates are also one of\nthe reasons for their preference by the investors. <\/p>\n\n\n\n<p><strong>Non-Convertible\nDebentures<\/strong><\/p>\n\n\n\n<p>These\ninstruments always retain the character of debt and cannot be changed into\nequity shares. As they cannot be converted to equity shares, the interest rates\nof these instruments are usually higher than other convertible instruments.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Equity\nShares<\/h3>\n\n\n\n<p><strong><em>The Equity Shares are the primary source of finance for the Company. The Equity Shares give investors the right to vote, profit sharing, and claim on the assets<\/em><\/strong>. <\/p>\n\n\n\n<p>They are also called the Ordinary Shares in the Company. No preference is given to these shares regarding the payment of Dividend and while repayment of Capital. The Equity Shareholders are real owners of the Company. <em><strong>Section 43 (a) of Companies Act, 2013<\/strong><\/em><sup><a href=\"http:\/\/mca.gov.in\/Ministry\/circulars\/cir2002\/cir_30092002.html\"><strong>[1]<\/strong><\/a><\/sup><em><strong>, <\/strong><\/em>talks about Equity Shares and states:<\/p>\n\n\n\n<ul><li>With voting\nrights; or <\/li><li>With the right\nto Dividend, as prescribed by the rules of the Act.<\/li><\/ul>\n\n\n\n<p><strong><em>There are different types of Equity Shares in a Company which are:<\/em><\/strong><\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"580\" height=\"352\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-27.png\" alt=\"types of Equity Shares in a Company\" class=\"wp-image-4736\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-27.png 580w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-27-300x182.png 300w\" sizes=\"(max-width: 580px) 100vw, 580px\" \/><\/figure><\/div>\n\n\n\n<p><strong>Authorized Share Capital<\/strong><\/p>\n\n\n\n<p>The\nmaximum amount of Capital that Company can issue. Limit of authorized Capital\ncan be increased with the permission of the respective authorities.<\/p>\n\n\n\n<p><strong>Issued Share Capital <\/strong><\/p>\n\n\n\n<p>The\namount of Capital which Company offers to investors out of authorized Capital\nof Company is the Issued Share Capital.&nbsp;&nbsp;\n<\/p>\n\n\n\n<p><strong>Subscribed Share Capital<\/strong><\/p>\n\n\n\n<p>It\nis part of the Issued Capital which the investors accept and agree.<\/p>\n\n\n\n<p><strong>Paid Up Capital<\/strong><\/p>\n\n\n\n<p>The paid-up capital is the amount which <a href=\"https:\/\/corpbiz.io\/company-registration\"><strong>registered Company<\/strong><\/a> invests in the business. It is part of the Subscribed Capital which the investors pay to the Company. <\/p>\n\n\n\n<p><strong>Right Shares<\/strong><\/p>\n\n\n\n<p>These\nshares are issued to protect the ownership of the existing owners of the\nCompany. When someone invests in the Equity Shares of Company, the Company will\nissue further shares to you, theses new shares issued are the Right Shares.<\/p>\n\n\n\n<p><strong>Bonus Shares<\/strong><\/p>\n\n\n\n<p>The\nDividend when issued to the investors of Company is issued in the form of Bonus\nShares.<\/p>\n\n\n\n<p><strong>Sweat Equity Shares<\/strong><\/p>\n\n\n\n<p>The\nSweat Equity Shares are issued to the employees and Directors of the Company\nwhen they perform their job correctly.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is the Procedure for the Conversion of Debentures into Equity Shares?<\/h2>\n\n\n\n<p><strong><em>Under Companies Act, 2013, Section 71(1)<\/em><\/strong> authorizes the Company to issue Debentures with an option for Conversion of Debentures into Equity Shares. The above option of Conversion of Debentures into Equity Shares shall be approved by a special resolution passed by the Board in the General Meeting. <\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"591\" height=\"476\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-28.png\" alt=\"Procedure for the Conversion of Debentures into Equity Shares\" class=\"wp-image-4739\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-28.png 591w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-28-300x242.png 300w\" sizes=\"(max-width: 591px) 100vw, 591px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Hold\nBoard Meeting<\/h3>\n\n\n\n<p>The\nresolution for Conversion of Debentures into Equity Shares should be approved\nin the Board Meeting. The approval of shareholders, as well as Debentures Holders,\nis taken for the Conversion. After passing of the Board Resolution, the notice\nfor General Meeting should be passed.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Hold\nGeneral Meeting<\/h3>\n\n\n\n<p>After\npassing of the Board Resolution, General Meeting is held. A Special Resolution\nfor the Conversion of Debentures into Equity Shares is passed. The Special\nResolution cannot be passed by the shareholders until and unless the Articles\nof Association (AoA) authorizes for the Conversion of Debentures into Equity\nShares.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">File\nForm MGT-14<\/h3>\n\n\n\n<p>The\nSpecial Resolution passed by the members should be filed with the Registrar of\nCompanies (RoC). The passed Special Resolution should be filed within 30 days\nfrom the date of the passing of the Special Resolution for Conversion of\nDebentures into Equity Shares. This Special Resolution is passed with <strong><em>Form<\/em><\/strong>\n<strong><em>MGT-14<\/em><\/strong>.\n<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Letter\nof Option<\/h3>\n\n\n\n<p>Letter\nof Option is sent to Debenture Holders, and one copy of Letter is also sent to\nSEBI (Securities and Exchange Board of India). The Letter is sent for verifying\nthe consent of all Debenture Holders for Conversion of Debentures into Equity\nShares. The Secretary verifies the Letter of Option.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Allotment\nof Shares<\/h3>\n\n\n\n<p>Conversion\nof Debentures into Equity Shares is done. The Debenture Holders are then asked\nto return there Debenture Certificates. The Secretary carries out the Allotment\nof Shares to Debenture\nholders in meanwhile. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Issue\nof Share Certificate<\/h3>\n\n\n\n<p>The\nShare Certificates are prepared and then issued as prescribed in the <strong><em>Form\nSH-1<\/em><\/strong>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Change\nin Register of Charges <\/h3>\n\n\n\n<p>The\nCompany has to cancel the charges against assets which were created at the time\nof issue of Debentures. After the Allotment of shares, the necessary changes\nare made in the Register of Charges.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Entry\nin Register of Members<\/h3>\n\n\n\n<p>After\nissuing of Share Certificate to the Shareholders, their names are entered in\nthe Register of Members.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Filing\nof Return Allotment<\/h3>\n\n\n\n<p>A\nReturn of Allotment should be filed with the Registrar of Companies (RoC)\nwithin 30 days of Allotment of Shares. The Return of Allotment should be filed\nin Form PAS-3 with the fee prescribed under Companies (Registration and Offices\nand Fees) Rules, 2014. The following attachments are required to be filed with\nForm PAS-3:<\/p>\n\n\n\n<ul><li>Complete list of\nAllottees<\/li><li>Copy of Board\nResolution passed<\/li><li>Copy of Special\nResolution passed<\/li><li>The Valuation\nReport &nbsp;<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p> The Companies Act, 2013 authorizes for the Conversion of Debentures into Equity Shares. The Company does this type of Conversion for economic benefit to shareholders. The Procedure of Conversion of Debentures into Equity Shares is long-lasting and time-consuming. We at <a href=\"https:\/\/corpbiz.io\/\"><strong>Corpbiz<\/strong><\/a> have experienced and qualified professionals to help you with the Procedure of Conversion. Our experts will assist you in getting through the Procedure of Conversion of Debentures into Equity Shares. Our experts will plan ideally and make certain the successful completion of your work. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/how-does-a-company-issue-debentures-to-the-public\/\">How does a Company Issue Debentures to the Public?<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In a simple sense, the Conversion of Debentures into Equity Shares means to change the loan liability into a capital liability. After the Conversion of Debentures into Equity Shares, the Debenture Holder becomes Shareholder.&nbsp; The shareholders will get the right to vote. After Conversion, until Liquidation occurs in the Company, the money invested by shareholders [&hellip;]<\/p>\n","protected":false},"author":16,"featured_media":4741,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[120,340],"tags":[392],"acf":{"service_id":"321"},"authorName":"Sakshi Sharda","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/sakshi-sharda.jpg","authorDescription":"Sakshi Sharda has done BBALLB(HONS) and holds a strong knowledge on the matters pertaining to finance and law. From the past one year she is working as a legal advisor and in her leisure time she works on improvising her knowledge. Sakshi is spreading her knowledge by writing for Corpbiz.","postViews":60058,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/4734"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=4734"}],"version-history":[{"count":11,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/4734\/revisions"}],"predecessor-version":[{"id":21669,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/4734\/revisions\/21669"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/4741"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=4734"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=4734"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=4734"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}