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How Do I Record a Loan Converted to Shares (Debt-for-Equity Conversion by Deed of Settlement)?

James Collett
  • Updated

Where a director's or shareholder's loan to the company is converted into shares — typically documented by a deed of settlement (or deed of release) between the company and the lender — this is recorded in Inform Direct as a share allotment for non-cash consideration. There isn't a separate "convert loan to shares" transaction type; the loan settlement is the consideration for the new shares.

How to record it

  1. Go to the Share Classes tab and select Allot new shares, allotting the new shares to the lender (the existing director or shareholder whose loan is being converted).
  2. When asked about consideration, select Fully non-cash (or Mixture of cash and non-cash if part of the loan is being repaid in cash and the remainder converted).
  3. In Amount treated as paid on non-cash consideration, enter the amount of the loan being settled by the allotment.
  4. In Description of non-cash consideration, describe the settlement, e.g. "Settlement of £10,000 loan per deed of settlement dated [date]". This description is what appears on the SH01 filed with Companies House and in the register of allotments.
  5. Date the allotment to match the date the deed of settlement takes effect.

See How to add non-cash consideration details when allotting shares for the general mechanics of the non-cash allotment screen.

What Inform Direct doesn't do: Inform Direct records the resulting share allotment and files the SH01, but it doesn't draft the deed of settlement itself, or any board/shareholder resolutions approving the conversion — templates for a memorandum of terms of loan and deed of release are available in the Template Library if relevant, but the deed of settlement document that records the specific terms of this conversion should be prepared with your solicitor.

Tax and company law: converting a loan into shares can have tax consequences (for example, loan relationship rules, or close company loan rules such as CTA 2010 s.455 where relevant) and needs the company to have authority and headroom to allot the new shares. This isn't something to action from guidance alone — confirm the tax treatment and documentation with your accountant or solicitor before recording the conversion.