What is the process of converting a private limited company into a public limited company?

What is the process of converting a private limited company into a public limited company?

What Is a Private Company?

Private companies are businesses that are owned by individuals. They may issue stock and have shareholders, but the shares do not trade on public exchanges like BSE or NFT and do not go public through initial public offerings (IPOs). Therefore, private companies are exempt from the Securities and Exchange Commission’s (SEC) strict filing requirements for public companies. In addition, private company shares are less liquid than those of public companies, but they are hard to value.

What is a Public Company?

An initial public offering (IPO) or first public offering (IPO) is a process through which a private company sells all or part of its shares to the public. This type of company does not have restrictions on transferring shares to the public. 

Is there a minimum conversion requirement?

Listed below are some of the minimum requirements for conversion of private company into a public company and how to go about doing that.

  1. Shareholders must have a minimum of seven
  2. One Director DSC
  3. All directors are required to complete DIN KYC
  4. Minimum paid-up capital is not required
  5. There can be a mixture of shareholders and directors
  6. Three directors are required

The benefits of converting a private limited company to a public limited company

Listing of Shares

When a company becomes a public company, they will be able to list their shares on a stock exchange. Although that would not necessarily be essential for a company that is planning to raise funds through the sale of shares.

Raise funds through the Public

Stock exchanges like the BSE and NFT are great places for raising investments. Shares in companies can be arranged in many ways. You can use preference shares, equity shares, or other forms of shares to raise funds.

Limited Liability

It is important to note that the concept of limited liability remains the same even after a company’s conversion from a private limited company to a public limited company.

Transfer of Shares Freely

There is no restriction on transfer of shares in Public Limited Companies, subject to the provisions of the securities exchange board of India (SEBI) Act and Companies Act.

Easy Acceptance of Deposits

Under the rules of Section 76 of the Companies Act 2013, public limited companies can receive deposits from the public on behalf of the company as per the provisions of the law.

Increase in Reputation

It is important that a private limited company converts into a public limited company to improve its reputation. Public limited companies can list their shares on the market. By listing their shares on the stock exchange, the firm will be able to improve its reputation. Listing the shares on the stock exchange will increase its reputation in no short time.

Acceptance of Deposits

Section 76 of the Companies Act of 2013 allows a company to accept deposits from its investors in accordance with its policies.

Do you know if it is possible to convert a private limited company into a public limited company?

Private limited companies can become public limited companies in the following ways:

1) Calling of Board Meeting

It is imperative that the Board Meeting be held to discuss the following agenda items.

  • A modification to the Memorandum of Association (MOA).
  • AOA (Articles of Association) must be approved by shareholders.
  • Converting a private limited company to a public limited company requires shareholders’ approval.
  • Organize an extraordinary general meeting in the company and determine the date, time, and place.
  • The purpose of this meeting is to get approval for an extraordinary general meeting and to authorise someone to circulate the notice of the meeting.
  • In accordance with Section 101 of the Companies Act, 2013, the notice of the extraordinary general meeting will be sent to the Company’s Directors, Members, and Auditors.

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2) Hold Extraordinary General Meeting

It will be decided whether to convert the Private Limited Company to a Public Limited Company in the EGM by passing a resolution passed by all shareholders. For the extraordinary general meeting to take place, the notice must be given no less than 21 days in advance.

It is important to remember that the notice period for shareholders can be shortened if not less than 95% of the members eligible for voting at such meetings consent in writing or through an electronic means. It is essential that you follow the prescribed procedure when issuing and signing an extraordinary general meeting notice.

On the fixed date, the extraordinary meeting will be held and a resolution will be passed, as well as a resolution for the conversion of the private limited company to a public limited company and alteration of the Memorandum of Association and Articles of Association.

3) Filing of the form with RoC:

The formalities pertaining to filing the necessary paperwork with the Registrar of Companies (RoC) once the EGM has taken place, and the resolutions have passed, have to be completed within the time frame given to do so.

E-Form MGT – 14:

Upon passing resolutions, this form needs to be submitted to the RoC within 30 days. It can be found on the MCA portal, with the attachments listed below:

  • Explanatory Statement in accordance with Section 102 of the Act is attached to the notice of the extraordinary general meeting.
  • Reproductions of the resolutions passed at the extraordinary general meeting.
  • The new MOA and AOA are attached.

E-Form INC – 27:

Documents must be enclosed with the form along with the resolutions passed by the extraordinary general meeting. This form must be submitted within 15 days following the extraordinary general meeting.

  • An agenda for the meeting is attached.
  • Detailed list of company members with essential information
  • An AOA and MOA copy of the new agreement.
  • Here is the resolution(s) that were passed at the EGM.

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