Seamless Transition from Private Company into a Public Company
Our service facilitates the seamless transition of a private company to a public company, ensuring compliance with legal requirements while unlocking the ability to raise capital through public share offerings.
Meaning
Conversion refers to the process of changing a company’s legal status from one form to another. Specifically, conversion from a private company to a public company involves altering the company’s structure to allow it to offer its shares to the general public and list on a stock exchange.A private limited business becomes accessible to the general public by transforming into a public limited company. This allows the company to raise money by issuing shares to a wider audience of investors.
This transformation is governed by the provisions of the Companies Act, 2013 in India and entails complying with specific regulatory requirements such as amending the company’s Memorandum and Articles of Association, obtaining necessary approvals from shareholders and regulatory authorities, and increasing the minimum number of directors and shareholders. The primary purpose of this conversion is to access broader capital markets, enhance the company’s credibility, and provide liquidity to existing shareholders.
Reasons for Conversion
- Access to Capital: Public companies can tap into a broader range of financial resources by issuing shares to the general public. This influx of capital can be used for expansion, R&D, or debt reduction.
- Enhanced Credibility: Listing on a stock exchange increases a company’s visibility and credibility, making it more attractive to investors, partners, and customers.
- Share Liquidity: Shares of a public company can be easily bought and sold on the stock exchange, providing liquidity to shareholders, including founders and early investors.
- Employee Incentive: Public companies can offer stock options and shares as part of employee compensation packages, which can attract and retain top talent by aligning employee interests with company performance.
- Growth Opportunities: Public companies can more easily engage in mergers and acquisitions, using their publicly traded shares as currency, which can be pivotal for scaling operations and expanding market presence.
Advantages of Going Public
- Capital Access: Going public allows companies to raise significant capital by issuing shares to the public. This influx of funds can be used for expansion, research and development, debt reduction, and other growth initiatives. Public companies have more options for accessing capital markets, including secondary offerings and the issuance of bonds.
- Market Visibility:Listing on a stock exchange increases a company’s visibility and credibility. This enhanced profile can attract not only investors but also new customers, business partners, and media attention. Being a publicly traded company signals stability and reliability, often leading to better market positioning.
- Liquidity:Shares of a public company are more liquid, meaning they can be bought and sold on the stock exchange with relative ease. This liquidity benefits shareholders by providing them with an exit strategy and helps founders and early investors realize the value of their investments.
- Employee Incentives: Public companies can offer stock options or equity-based compensation plans, which are powerful tools for attracting, motivating, and retaining talented employees. These incentives align employees’ interests with the long-term success of the company, fostering a more committed and productive workforce.
- M&A Opportunities: Being public enhances a company’s ability to engage in mergers and acquisitions. Publicly traded shares can be used as a form of currency in these transactions, making it easier to negotiate and close deals. This can accelerate growth and diversification strategies.
- Economies of Scale: Going public provides access to larger markets and can facilitate more efficient scaling of operations. With increased capital and market presence, public companies can take advantage of economies of scale, reducing costs per unit as production and sales volumes increase. This can lead to greater profitability and competitive advantage in the market.
Procedure for Transition from Private to Public Company
- Board Meeting: A notice regarding holding the Board Meeting is sent including the agenda of the meeting. It must be issued at least 7 days prior. The resolution passed in the Board Meeting must be as per Section 149(1)(a) of the Companies Act, 2013.
- Notice of EGM: After the Board Meeting takes place, a notice for the EGM must be issued to all directors, shareholders and auditors. The notice must be sent at least 21 days prior either in writing or electronically.
- Form Filiing: After the above steps are duly complied with, relevant forms must be filed with the RoC within stipulated time. These forms include MGT 14, INC 27.
- ROC Scrutiny and Certificate of Incorporation: The ROC will scrutinise the submitted documents and may raise queries or require clarifications. Address them promptlyUpon successful verification, the ROC will issue a fresh certificate of incorporation, officially recognising the company as a public limited company.
- Post-conversion Compliances: Update all documents and contracts with the new company name and status. Apply for a new PAN card, notify relevant stakeholders, and ensure the company maintains at least seven shareholders as required for public limited companies.
Documents Required
- Digital Signature Certificate (DSC) of all Directors.
- Director Identification Number (DIN) of all Directors
- Identity Proof of Directors (Aadhaar, PAN)
- Address Proof of Directors (Utility Bills such as Sewage, water, electricity bill)not more than 2 months old
- Passport size photograph of directors
- Financial statements
- Proof of Business address
– NOC from owner of premise if on rent/lease
– If premise owned, relevant property documents showing ownership
- Income Tax Return
What is included in this
FAQs
Converting from a private to a public company involves navigating regulatory compliance, managing increased costs and administrative burdens, and facing market pressures and stock price volatility. It also requires adapting to enhanced disclosure and governance standards, which can impact company culture and strategic focus.
Post-conversion compliance includes filing quarterly and annual reports with SEBI, adhering to disclosure requirements, and following SEBI’s corporate governance norms. Companies must also comply with the Companies Act, 2013, and manage investor relations effectively.
Yes, in India, there is a requirement for minimum paid-up capital when converting from a private to a public company. As per the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and the Companies Act, 2013- For a company to list on a recognized stock exchange, the minimum paid-up capital required is typically ₹1 crore.
Additionally, the company must meet other listing requirements set by the stock exchange, which may include minimum public shareholding and other financial criteria.
A minimum of seven shareholders is required for a public limited company.
