To commence business as a private limited company is beneficial at initial stage as administration and management of a private limited company is less cumbersome than public limited company. However, owners of private limited company may convert their company into a public limited company if they consider it fit for their business and further expansion.
Further, mostly it happens that when the private limited company expand and intent to list itself with the stock exchanges, then at first stage, they are required to convert themselves into Public limited Company by complying the procedure laid down in the Companies Act, 2013 and the rules made there under.
What is Private Company
Private company means acompany 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:
Providedthat 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:
(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;
Private limited companies are those entities which are prohibited by its articles to offer its share to public and have restrictions on transfer of its shares. These entities are privately managed and do not invole shareholders at large, since it is a closely held entity and doesn’t include public interest.
What is Public Company?
As per definition of public company given under 2(71) of Companies Act, 2013,
Public company means a company which is not a private company
Thus by definition it is clear that the prime restrictions which are imposed on a private limited company are not applicable in case of public limited company.
We can summarise that public company can:
1. freely transfer its shares;
2. have members without any maximum limit;
3. offer public to subscribe its shares;
Process of conversion
1. Any director or person authorised by the Board will dispatch a notice to call for Board Meeting to consider the proposal of conversion of private company into public company.
2. Notice shall be given as per section 173 of Companies Act, 2013 read with secretarial standard 1 on Board Meetings.
3. Conduct Board Meeting to consider the feasibility of conversion and after assent of the board members, call for a General Meeting for approval of members to alter the Article of Association and Memorandum of Association.
4. Dispatch notices for calling an Extra Ordinary General Meeting (EGM)/ Annual General Meeting (AGM) to all the members in accordance with provisions section 101 of Companies Act,2013 read with secretarial standard 2 on General Meetings
5. Accord approval of Members through Special Resolution at Extra Ordinary General Meeting (EGM)/Annual General Meeting (AGM) for conversion of private company into public company.
6. File E form MGT-14 to submit special resolution with the Registrar of Companies. After approval of Form MGT 14, File E form INC 27 with the Registrar of Companies
7. The Registrar shall after considering the details filed in the form, approves the Form and fresh issue certificate of incorporation reflecting new name by removing the word “Private” from the name of the Company.
What is included in this
- Preparation of documents;
2. Certified True copy of Board resolution
3. Certified True Copy of EGM
4. Notice of EGM
5. Amended MOA & AOA
6. ROC Approval
7. Filing of Forms with ROC
8. Certificate of incorporation
- Filing of conversion form
- Laisioning with department;
- 24/7 help to assist you;
1. What is benefits of conversion of private company into public company
a. To raise fund from public: Private companies are not allowed to raise money from general public as they are restricted to do so by its article of association. However, a public company have always had an option to get itself listed on stock exchange and raise money from the public. Thus to acquire larger chunk of fund, private company may resort to opt for becoming public company.
b. To create brand value: Private companies are generally closely held companies having limited stakeholder and lesser known among public. whereas public company are considered more in value as compared to private company due to its larger number of shareholders. Private companies often tend to convert into public company to gain brand value in the market.
c. Expansion and growth of business: Over a period of time, Company explore the business on broader platform by converting its nature from closely held to public company.
2. What are the basic difference in private and public company?
Apart from the difference as set out in its definition given under Companies Act, 2013 the basic difference is given below:
As per section 149 of Companies Act, 2013, Private Company is required to have 2 directors whereas public company should have 3 directors in the Board of the Company
As per section 3 of Companies Act, 2013, seven or more persons, can form a public company whereas two or more persons, are required to form a private company.
A private company should end its name with “Private limited company” and public company should mention “limited” or “public limited” company.
3. Is Companies Act, 2013 is the only governing regulation for conversion of private to public?
No, If any Company is registered with other any regulatory bodies like SEBI, RBI, MSME, IRDA , Companies have to follow additional compliance as prescribed by different regulators under which Company is registered
4. What are the compliances post conversion of Company’s status?
Below given are some additional requirements needs to be complied post conversion:
1. Printing of New Memorandum of Association and Article of Association to reflect the removal of word “Private” from the name of the Company.
2. Change in Sign Board, Letter head, stationary and other items where old name used to be displayed.
3. Application to update name in PAN.
4. Intimation and application to other authorities where Company is registered i.e. GST, EPF, ESI etc.
5. Intimation to various suppliers and parties with whom Company has business.
6. Intimation to banks where Company is maintaining bank accounts.