Private limited companies and public limited companies are both types of limited companies. Public companies are defined under Section 2 (68) of the Companies Act, 2013 and private companies under Section 2 (69). As far as we are aware, private companies have articles of association that prevent public participation and restrict transferability of shares. Unlike public companies, private companies now have the option of having any minimum paid-up capital they desire. A public company is one that is not a private limited company and has a paid-up capital of at least five lakh rupees, or a higher capital as determined by the Government.
The Companies Act, 2013 and Incorporation of Companies Rules, 2014 mention the conversion of private company into public company. Before we proceed, however, it is necessary to understand why it is necessary to convert a private limited company into a public limited company. Public Limited Companies are required to follow a number of statutory guidelines under the Companies Act, 2013. Moreover, the Companies Act, 2013 (Act) and SEBI Act require various compliance requirements to be met. Due to the fact that Private Limited Companies have fewer compliances than Public Limited Companies, they generally convert into Public Limited Companies.
The following important provisions are included in this Act:
Under section 13 of the Act, a company can alter its memorandum without seeking the central government’s permission. Under section 61, a company can alter its memorandum without obtaining the government’s permission. As outlined above, prior approval is required in those cases, although the section does not specify that such approval is necessary for conversions that include or remove the word “Private.”
Further, Section 14 stipulates that any change to memorandums or the conversion of private corporations to public corporations requires prior permission. The Companies Incorporation (Fourth Amendment) Rules 2018 also provide details on how a public corporation can be converted into a private company, and should be read in conjunction with this section.
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The following steps are involved in converting a private company into a public company:
As described in Rule 41 of the Incorporation (Fourth Amendment) Rules, 2018, public companies can be converted into public companies by following the steps described therein.
- An approved conversion procedure will be outlined in a Board meeting. Minutes of the meeting will be drafted according to secretarial standards. The meeting should adhere to all formalities in accordance with secretarial standards. The Board approves the conversion procedure.
- If the Company wishes to convert further, any representative of the Company can do so. One Certified True Copy of the resolution may be required for any professional representing the Company in speaking with the Regional Director.
- Calling the General Meeting is necessary.
- A decision must be made at the General Meeting for the company to convert.
- It is mandatory to file certain documents at the time of the conversion decision, and these should be submitted carefully. Companies Act 116 mandates that certain documents be filed at the time of the conversion decision, and these should be submitted carefully. C. 117 mandates that certain documents be filed at the time of the conversion decision, and these should be submitted carefully.
- A conversion application must be drafted and submitted by the Regional Director.
- The Regional Director must receive the application and documents/declarations required by Rule 41 within 60 days of the resolution’s passage.
- In addition, particulars must be submitted before the RD, according to Rule 41 (2).
- The company’s application must include a list of creditors and debenture holders, as well as details regarding due amounts, claims, and liabilities, contingent debt, and uncertain debt.
- During normal business hours, at the registered office, you can inspect a copy of the duly authenticated list of creditors and debenture holders.
- Inc 25 A in vernacular and INC 25 A in English are both forms that must be filed by the company.
- A period of 15 days must be given to RD for seeking specific information, which details must be submitted in an E Form Number after said details are submitted. The application may be resubmitted within 30 days if RD rejects it within that period.
- RDs will automatically issue orders if no order of approval, rejection, or resubmission has been passed by the RD.
- A hearing will be scheduled within 30 days of receipt of any objections received. There is a 30-day deadline for the RD to pass an order if a consensus is reached. The Company can submit an application about a consensus.
- RDs may reject a palliation after 60 days if there has been no consensus.
- The conversion will not be approved if there is a pending prosecution against the company.
- A conversion must be permitted by RD in the absence of any pending prosecution or anticipated prosecution.
- The INC 28 form must be completed within 15 days of receiving the conversion order.
- In accordance with the rules, the aforementioned procedure must be followed.
As part of the process of converting a public company into a private company, a number of mandatory formalities must be followed. Private companies are offered fewer compliance requirements after they are converted into public companies. After they have been converted into public companies, they will have fewer compliance requirements.
However, certain precautions must be taken during the conversion process. Although the law permits the conversion of public companies to private companies, precautions need to be taken since some companies’ conversion decisions are controversial. It is crucial that the information submitted to the Regional Director is accurate. All stakeholders must have a consensus on the conversion for the process to be successful. The National Company Law Appellate Tribunal clarified in one case that the conversion process does not require the approval of all shareholders.