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Pro trade tax > Conversion of private to public & public to private

Conversion of Private to Public and Public to Private Company

Background:

A company incorporated under the Companies Act, 2013 is allowed to conversion of status i.e. from OPC to LLP, Pvt. Limited to Public, Public to Private, LLP to Pvt. Etc.

There could be certain reasons of conversion from one status to another such expansion of business and allowing shareholding of public by a private limited company, OPC or LLP, bringing control in promoter hand instead of allowing public shareholding by a Public Limited Company and others permutations and combination.

What is Private Limited Company?

The Section 2(68) of Companies Act, 2013, defines Private Company. The Articles of Association (AoA) restricts the transferability of shares in the Company and prevent the public at large to subscribe for the shares of the Private Company. This is the main criteria which differentiate the Private Company from Public Company.

The maximum number of the members for Private Company is 200 (except in case of One Person Company). This maximum number does not include any former employee or present employees. As the Private Company does not transfer the share freely and limited interest of members is involved, the law has granted several privileges and exemptions to Private Company.

What is Public Limited Company?

The Section 2(71) of the Companies Act, 2013[1], defines a Public Company. A Public Company sells all or a portion of itself through an initial public offering. It is not a Private Company where the shares are restricted to be transferred to the public at large. The public Company for expansion can trade-in an open market by selling shares to the public at large to raise capital.

What is the procedure for Conversion of Private Company to Public Company?

The procedure followed for the Conversion of Private Company to Public Company is as follows:

Step-1 Calling of Board Meeting

Step-2 Issue of Extra Ordinary General Meeting (EGM) Notice

Step-3 Holding of Extra Ordinary General Meeting (EGM)

Step-4 Form Filing to ROC

Step-1-Calling of Board Meeting

Issue a notice for calling a Board Meeting along with the agenda. The issue of notice should be given to Directors at least 7 days before the Board meeting. The notice should be sent to the registered address of all the Directors.

The Board Meeting should be held to discuss the following agendas:

  • To adopt new Memorandum of Articles (MoA) subject to the approval of shareholders.
  • To adopt new Articles of Articles (AoA) subject to the approval of shareholders.
  • To get the approval of Conversion of Private Company to Public Company from the shareholders.
  • Fix date, time and the place for holding EGM in the Company.
  • To get approval for EGM and authorize someone to circulate notice of EGM.

Step-2-Issue of EGM Notice

According to the provisions of Section 101 of Companies Act, 2013, the notice of EGM shall be given to all the Directors, Members and Auditors of the Company.

Step-3-Hold EGM

The shareholder’s approval for the Conversion of Private Company to Public Company will be taken in the resolution passed by all the shareholders in the Extra-ordinary General Meeting (EGM). The notice of EGM should be given not less than 21 days before the date on which the EGM is to be held.

The notice period to shareholders can be shorter if the consent is given in writing or through an electronic medium by not less than 95% of the members entitled to vote at such meetings. Also, follow the procedure for prescribed for issuing and signing of notice of EGM.

The EGM will be held on the fixed date and resolution will be passed. The resolution will be passed for Conversion of Private Company to Public Company and alteration of MoA and AoA.

Step-4-Form Filing to RoC

It is mandatory to file Form MGT-14 within 30 days from the date of passing of resolution in the EGM. The attachments with the MGT-14 Form to be attached are:

  • Notice of EGM
  • Certified Copy of the Resolution passed in the EGM
  • Copy of new MoA and AoA

Also, File Form INC-27 within 15 days after passing of the resolution in the EGM. The following attachments should be attached with the INC-27:

  • Minutes of the Meeting
  • Copy of Altered MoA
  • Copy of Altered AoA
  • Copy of the Resolution passed
  • List of members in the Company with all the essential details
  • Optional Attachments if required.

After the approval of the Form MGT-14 and INC-27, the Registrar of Companies (RoC) will issue a new Certificate of Incorporation for the Company with the changed name.

What documents are required in the process of Conversion of Private Company to Public Company?

During the process of conversion of Private Limited Company to Public Limited Company, there are certain documents required. The list of documents which are primarily required for the Conversion of Private Company to Public Company are as follows:

  • Digital Signature Certificate (DSC) of all Directors to digitally sign the documents.
  • Directors Identification Number of all Directors
  • Permanent Account Number (PAN) Card of all Directors
  • Passport size Photographs of all Directors
  • Aadhaar Card Copy of all Directors
  • Rent Agreement Copy and NOC from Landlord (in case business place is Rented Property)
  • Electricity Bill/ Water Bill of business place

What is the procedure for Conversion of Public Company into Private Company?

The step-wise procedure to be followed for the Conversion of Public Company to Private Company is as follows:

Step-1 Board Meeting

The Company should send notice to hold a Board Meeting to the directors at least 7 days before the date of Board Meeting.

The Company should hold the Board Meeting as per the Rules prescribed under Section-173 of Companies Act, 2013. The approval of the following items should be done:

  • To consider the proposal for Conversion of Public Company into Private Company.
  • To approve amendments in MoA and AoA of the Company subject to the approval is subject to member’s approval through a special resolution.
  • To fix time, date and place for General Meeting and authorize a Director or Company Secretary to send notice of General Meeting to member.

Step -2- Notice for General Meeting

The Company should send a notice at least 21 days before to hold a General Meeting for approving items mentioned in supra by passing a special resolution.

Step-3- Holding of General Meeting

The Company should duly hold a General meeting for the approval of Conversion of Public Company into Private Company. The consent for the Alteration in MoA and AoA should also be given through a special resolution. In General Meeting, the quorum should also be checked. As per Section 146 of Companies Act, 2013, the presence of Auditor in the General Meeting is necessary, if not present, then check whether Leave of Absence is granted or not.

Step-4- Filing of Forms

The form MGT-14 should be filed within 30 days of passing of the special resolution. The Form MGT-14 should be attached with the following documents:

  • A true certified copy of Altered MoA
  • A true certified copy of Altered AoA
  • Notice of General Meeting with an explanatory statement
  • A true certified copy of passed Special Resolution

Step-5- Application to Regional Director

An application should be filed within 60 days of passing of the special resolution to the Regional Director. The application should be filed in e-Form RD-1. The following documents should accompany the application:

  • Copy of MoA and AoA with proposed alterations.
  • Copy of the minutes of General Meeting held.
  • The Board Resolution in which the authorization for Conversion is given.
  • List of creditors and debentures holders should be attached

Step-6- Advertisement in Newspaper

Meanwhile, an application should be advertised in Form INC-25A, in a vernacular newspaper in vernacular language in the district, and in English newspaper, which is circulated widely in the State.

 Step-7- Appraisal by Regional Director of submitted documents or resubmission

After the submission of details to the Regional Director (RD), some more information can be asked by RD. These resubmissions should be submitted in 15 days. The application can be rejected by RD within 30 days period from the date RD asked for resubmission of application if the resubmissions are not made. A maximum of 2 resubmissions is allowed.

If no objection is received in response to the advertisement, and the application is complete, the same can be put up for orders without hearing. The application submitted should be passed by RD within 30 days from the date of filing of an application.

If no order of approval, rejection or resubmission is made by RD within 30 days, the application filed is deemed to be allowed by the RD, and approval order shall be automatically issued to the applicant.

The RD can hold a hearing in case of objection received. The RD should give reasons in writing of the hearing and hearing should be held within 30 days.

If no consensus is received for Conversion within 60 days from the date of filing of the application, the RD can reject the application within the stipulated period of 60 days.

Step-9- Order for Conversion by Regional Director and Filing of Order

The RD when approves the Conversion process, an order for such Conversion will be issued to the applicant. The said order shall be filed in Form INC-28 to Registrar of Companies (RoC) within 30 days from the date of passing of such an order.

What are the general benefits of converting a Public Limited Company into Private Limited Company?

As stated in the background, generally a company is converted from the Public Limited status to Private Limited Status to exercise effective control on the management of company as there will be no public shareholding in private limited company.
The general benefits of Conversion can be listed as follows:
• Restriction of Public Issue: The members of Private Company cannot issue their shares publicly.
• Restriction on Transfer of Shares: The shareholders need to discuss and take prior consent of the other shareholders for the transfer of shares. The shareholders having major control on the shareholding can hold transfer of shares to a person who may not be suitable for the management of company.
• Loans to Directors and Loans from Directors: The Private Company can grant Loans to Directors without the prior approval or consent of the Central Government and vice versa.
• Relaxation from Statutory Meetings: There is no requirement to hold a Statutory Meeting in Company as no outsider is a shareholder of the Private Company.

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