CONVERSION OF PRIVATE COMPANY INTO PUBLIC COMPANY – A Gateway to New Opportunity

INTRODUCTION

Corporate Entities in India can be categorized into various types, class, categories and sub categories.

Two of the most popular and widely known classes of Companies are Private Company and Public Company. At the time of incorporating business entity applicants are provided with an options to select the class of Company basis which provisions of Companies Act, 2013 are applied. With an intention to provide liberty to businessmen to avail benefits of either class at later stage,Companies Act 2013 allows, post incorporation, to alter the class of Companyfrom Private to Public and vice versa.

In layman language, Private Companies are closely held Companies which can restrict transfer of shares by its Articles of Associations, prohibits invite public in any ways to subscribe their shares and have restriction regarding maximum number of members.

And Public Companies are those which do not have any such restrictions in their Articles of Associations with respect to transferability of Shares, invitation to public for subscription of Shares or regarding number of maximum members.

Both forms of Companies have their own benefits and limitations and operates according to the provisions of Companies Act, 2013 and rues thereof.

Companies Act, 2013 defines Private and Public Company as follows

2 (68) “PRIVATE COMPANY” means a company which by its articles

(i) restricts the right to transfer its shares;

(ii) except in case of One Person Company, limits the number of its members to two hundred:

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:

Provided further that—

(A) persons who are in the employment of the company; and

(B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased,

shall not be included in the number of members; and

(iii) prohibits any invitation to the public to subscribe for any securities of the company

2 (71) “PUBLIC COMPANY” means a company which—

(a) is not a private company [AND];

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ;

Private Companies, willing to convert its status from Private to Public has to comply provisions as stipulated in Companies Act, 2013 which are enumerated as below:

SECTIONS AND RULES OF COMPANIES ACT, 2013 APPLICABLE FOR CONVERSION

1. Section 2(68) and 2(71) :Definition Of Private And Public Company
2. Section 3 : Formation of Company
3. Section 13 read with Rule 29 of Companies (Incorporation) Rules 2014: Alteration of Memorandum of Association
4. Section 14 read with Rule 33 of Companies (Incorporation) Rules 2014: Alteration of Articles of Association
5. Section 18: Conversion of Companies Already Registered
6. Section 149: Company to have Board of Directors

PROCESS OF CONVERSION

1. Conduct Board Meeting: The Board meeting shall be convene to discuss the following Agenda items:
   • To approve conversion of Company into Public Company subject to approval of Shareholder
   • To adopt new set of Memorandum of Association subject to approval of Shareholder
   • To adopt new set of Article of Association subject to approval of Shareholder
   • Fix date, time and venue for conducting Extraordinary General Meeting
   • To approve notice for conveying Extraordinary General Meeting and authorize someone to circulate notice.
2. The Board meeting has to be convened as per Secretarial Standards -1. Notice and agenda to be circulated at least 7 days before the meeting. However, in case the period of intimation is less than 7 days, approval for shorter notice is to be obtained.
3. Issue notice for General Meeting: The notice shall be issued to the members by giving 21 days clear notice. However, General Meeting can also be conducted at a shorter notice by taking approval of more than 95% of shareholders entitled to vote.
4. Convene and hold General Meeting: Convene General meeting as per provision of Secretarial Standard. Take necessary approval from Members by passing Special Resolution for the proposal of conversion and adoption of new set of Article of Association and Memorandum of Association (consent of atleast 75% of total persons present).
5. File E Form MGT-14: File MGT-14 within 30 days of passing Special Resolution with Registrar of Companies.
   • Notice of calling Extraordinary General Meeting
   • Certified True Copy of Special Resolution
   • Altered copy of MOA and AOA
   • Certified Copy of the Board Resolution passed as an optional attachement.
6. File E Form INC-27: File INC-27 within 15 days of passing Special Resolution with Registrar of Companies alongwith following attachments:
   • Minutes of the General Meetings (EGM/ AGM) of the Members
   • Certified True Copy of Special Resolution
   • Copy of Altered MOA and AOA
   • Order of Condonation of Delay (if any)
   • Note: Form MGT-14 to file first as SRN of Form MGT-14 is required to fill in Form INC-27
7. After approval of E- Form MGT -14 and INC-27, if the Registrar of Companies find everything in order, he will issue the fresh certificate of Incorporation and will close the former registration of Company.

KEY POINTS FOR CONSIDERATION

1. Name of the Company to be altered from “Private Limited” to “Public Limited/Limited” wherever mentioned. 
2. Conversion to be approved by Shareholders and Central Government.
3. Memorandum of Association must be altered to give effect of conversion.
4. Articles of Association of Company to be altered in such a manner that they no longer include the restrictions and limitations applicable on Private Company.
5. Ensure number of members in Company is seven prior to conversion [Section 3(1) of Companies Act, 2013].
6. Ensure number of Director to be three [Section 149(1) of Companies Act, 2013].
7. Ensure Company has filed annual returns or financial statements due for filing with the Registrar [Rule 29 of Companies (Incorporation) Rules,2014].
8. Company has not failed to pay or repay matured deposits or debentures or interest thereon.
9. Post conversion Print New set of Memorandum of Association and Article of Association, arrange for new stationary and letter heads.
10. Make application for modification in PAN of Company.
11. Provide Intimation to Government Departments where Company is registered or any other concerned authority.