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CS Executive · Setting Up of Business, Industrial and Labour Laws · Conversion of Business Entities

Sunrise Traders, a partnership firm, is seeking registration as a company under Section 374 of the Companies Act, 2013. It has a secured loan from a bank. Which step relating to the bank is required?

The applicant must ensure that secured creditors, such as the bank, have consented to or given no objection to the registration prior to registering under this Part. Repaying the loan or converting it into shares is not mandated, and approval after registration would not satisfy the requirement.

  1. AEnsure the secured creditor has either consented to or given its no objection to the registrationCorrect
  2. BRepay the secured loan in full before applying
  3. CObtain the bank's approval only after the certificate of registration is issued
  4. DConvert the secured loan into equity shares of the company

Explanation

Section 374(a) requires the company to ensure that secured creditors have either consented or given no objection before registration. Repayment or conversion into equity is not required by the section, and consent after registration would defeat the purpose of the prior requirement.

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