Expert Services for Conversion of Public Company into Private Company
Our tailored services ensure a smooth conversion process, unlocking the advantages of reduced regulatory burdens, increased privacy, and cost-effectiveness.
Overview
Many a times, operating a public limited company may get cumbersome due to its strict regulatory requirements. Public companies, both listed and unlisted have to follow numerous regulations related to administration, management and day to day working.
Often a public limited company recourse to convert itself into private limited company to retain the control in hand of few people and to easily manage the company with lesser compliances. company;
What is Private Company
As per Section 2(68) of Companies Act, 2013,”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;
Reason of Conversion
- Reduced Regulatory Load: Public limited companies are subject to having more regulatory compliance requirement as compared to private limited company. Converting to a private limited company can reduce the administrative and regulatory compliance load and associated costs of compliance with these regulations.
- More Privacy: A public company is mandated to disclose multitude of information to the general public and regulatory authorities from time to time. Contrary to this, Private Company enjoys enhanced privacy and confidentiality as it is subject to fewer disclosure requirements.
- Enhanced Control: Public limited companies have larger shareholder(s) due to which company control is distributed to large number of shareholders and directors.In contrast, private limited companies have fewershareholders, resulting in enhanced control over the company’s business operations and decision-making.
- Cost Reduction: Public limited company incurs higher cost for regulatory compliance, shareholder communication and other administrative cost compared to private companies, leading in cost savings in these areas.
Process for Conversion
- Any director or person authorised by the Board will dispatch a notice to call for Board Meeting to consider the proposal of conversion of public company into private company.
- Notice shall be given as per section 173 of Companies Act, 2013 read with Secretarial Standard 1 on Board Meetings.
- Conduct Board Meeting to consider the feasibility of conversion and after assertion of the Board Members, call for a general meeting for approval of members to alter the Article of Association and Memorandum of Association.
- 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.
- Accord approval of Members through Special Resolution at Extra Ordinary General Meeting (EGM)/Annual General Meeting (AGM) for conversion of public company into private company.
- File E form MGT-14 to submit special resolution within 30 days of its passing with the Registrar of Companies.
- File E form RD-1 within 60 days of passing special resolution to file documents like minutes of general meeting, board resolution etc.
- The company shall, at least 21 days before the date of filing of the application to Regional Director (RD) for conversion, make public advertisement in Form INC 25A and should seek objection from any person who is likely to get effected by such conversion:
- If no objection is received by the Company within 14 days and if the application is complete in all aspect, then the concerned Regional Director passes the order within 30 days of filing application.
- If any objection is received the Regional Directorshall hold a hearing and direct the company to file an affidavit to record the consensus reached at the hearing, upon executing which, the Regional Director shall pass an order either approving or rejecting the application.
- File E form INC-27 within fifteen days from the date of receipt of approval and E Form INC 27 within 30 days with Registrar of Companies.
- The Registrar shall after considering the details filed in the form, approve the Form and issue certificate of incorporation reflecting new name by inserting the word “Private” afterthe name of the Company.
What is included in this
FAQs
- Less compliances
- No public interference
- Management by limited persons
- Easy control over operations of the 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” and public company should end its name with “Limited”..
Article of Association has to mandatorily incorporate the restriction in its article of association, to reflect the prime feature of a private company:
(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
(C) prohibits any invitation to the public to subscribe for any securities of the company
Below given are some additional requirements needs to be complied post conversion:
- Printing of New Memorandum of Association and Article of Association to reflect the word “Private” in the name of the Company.
- Change in Sign Board, Letter head, stationary and other items where old name used to be displayed.
- Application to update name in PAN.
- Intimation and application to other authorities where Company is registered i.e. GST, EPF, ESI etc.
- Intimation to various suppliers and parties with whom Company has business.
- Intimation to banks where Company is maintaining bank accounts.
- Company shall make disclosure of its former name on all the places or documents and financial statements where the name of the Company is displayed till the next two financial years.
No,Conversion shall not be allowed if any inquiry, inspection or investigation has been initiated against the company or any prosecution is pending against the company under the Act.
A listed company mustdelist itself and complete all formalities with stock exchange before it can convert into a private company.
If company has not complied with sections 73 to 76A, 177, 178,185,186 and 188 of the Companies Act, 2013 and rules made thereunder the Company is prohibited from conversion.
