Conversion of Private Company into Public Company

A company is a group of people who want to do some business activities after obtaining a legal existence. Among all the types of companies, Private companies and Public companies are the most popular. There are certain times and situations in which the conversion of private to public companies is needed. This blog focus will be on the area of, ‘Conversion of Private Company into Public Company’.

Definition of Company

The word ‘company’ has no clear technical or legal meaning. In general, a company is an association of peoples for some combined object or objects and the work of that association may be different and include economic as well as non-economic objectives.

Following are two main types of organisations for such associations as per Indian Law:

• Company
• Partnership

According to section 2(20) of the Companies Act, 2013 a company means, a company incorporated under this Act or any previous company law’.

Private Company and Public Company

Private Company

A private company is a company owned by a small number of shareholders, company members, or a non-governmental organization, and it does not offer its shares for sale to the general public.

As per section 2(68) of the Companies Act, 2013, ‘ Private Company means, a company that, by its article restricts the right to transfer its shares, if any and limits the number of its members to fifty. In addition to this, this type of company cannot offer its share to the general public as it restricts the shares.

The main advantage of a private company is they do not reveal its financials to the general public. Further, they are only answerable to their members/investors only.

Public Company

A company formed by government organizations are known as a Public Company. A public company under section 2(71) of the Companies Act, 2013 means a company that is listed on a stock exchange and can sell its securities to the general public. A public company needs to disclose its annual report to all the stakeholders and can expand its business by issuing more shares to the general public. Further, a public company needs to offer an IPO to the public and shareholders can sell securities freely on a stock exchange.

Benefits of Conversion of Private Company into Public Company

Following are some of the Benefits of conversion:

• No restriction on the number of shareholders
• Raising of capital through public issue of shares
• Brand Awareness
• Transferability of Shares

 The key consideration for the Conversion of a Private Company to a Public Company

The following are specific rules during the Conversion of a Private Company to a Public Company:

• As per Section 3(1) of the Companies Act, 2013, the number of members of the Company is 7 before the Conversion of the Company.
• Again the number of directors is to be increased to 3 as per section 149(1) of the Companies Act, 2013.
• The Company should pay all the matured deposits as per Rule 29(1) of Companies (Incorporation) Rules, 2014.
• The members of the Company should approve the Conversion of the Private Company to a Public Company.
• Name clause in the Memorandum of Association (MoA) be modified to exclude the word Private.
• The Company should file all the annual returns or financial statements due for filing with the Registrar of Companies (RoC).
• An application must adapt the Permanent Account Number (PAN) of the Company.
• Be responsible for the information to the Central government, where the Company has its registration.
• There should be an amendment to Articles of Association (AoA) so that they no longer include the restrictions and limitations of a Private Limited Company.
• The Central Government should also approve the Conversion.

Documents Necessary for the Conversion of Private Company to Public Company

Following are some of the primary documents necessary for the Conversion of a Private Company to a Public Company:

• Property Papers Copy (if Owned Property)
• Electricity Bill/ Water Bill (if Business Place)
• Digital Signature Certificate (DSC) of all Directors
• Directors Identification Number of all Directors
• Permanent Account Number (PAN) Card of all Directors
• Passport size Photographs of all Directors
• Adhaar Card Copy
• Rent Agreement Copy (if Rented Property)
• Electricity Bill/ Water Bill (if Business Place)

The Procedure for Conversion of Private Company to Public Company

Following are the procedure for the Conversion of a Private Company to a Public Company:

Calling of Board Meeting

Following are the agendas that must come out from the discussion in the Board Meeting:

• To get the approval of Conversion of Private Company to Public Company from the shareholder.
• To adopt new Articles of Articles (AoA) subject to the approval of shareholders.
• Fix the date, time and place for holding EGM in the Company.
• To adopt a new Memorandum of Articles (MoA) subject to the approval of shareholders.
• To get approval for EGM and authorize someone to circulate notice of EGM.

Issue of EGM (Extra-Ordinary General Meeting) Notice

According to section 101 of the Companies Act, 2013, the issue of notice of EGM will be to all the Directors, Members and the Auditors of the Company.

Hold EGM

The approval of shareholders for the Conversion of a Private Company to a Public Company will be taken in the resolution all the shareholders will pass in the Extra-Ordinary General Meeting (EGM). Further, the notice of EGM should be given not less than 21 days before the date on which the EGM is to be held. However, EGM will take place on a decided date and a resolution will be passed. Finally, the resolution will be passed for the Conversion of a Private Company to a Public Company and alteration of MoA and AoA.

Form Filing to RoC

After passing the resolution in Extra-Ordinary General Meeting, it is compulsory to file Form MGT-14 within 30 days. Following are the attachments with the MGT-14 Form are:

• Certified Copy of the Resolution passed in the EGM
• Notice of EGM
• Copy of new MoA and AoA

File Form INC-27 within 15 days after passing the resolution in the EGM. The following attachments must be given with the INC-27:

• • Copy of Altered MoA
  • Copy of Altered AoA

• Minutes of the Meeting
• Copy of the Resolution passed
• List of members in the Company with all the essential details
• Optional Attachments if required.

Thus, after approving Form MGT-14 and INC-27, the Registrar of Companies (RoC) will issue a new Certificate of Incorporation for the Company with the changed name.

Conclusion

Therefore, it is clear from the above discussion that, the Companies Act, of 2013, also provides for the Conversion of Private companies to Public companies. However, making changes in the Memorandum of Association (MoA) and Articles of Association (AoA), the Conversion will take place from a Private Company to a Public Company. So, the procedure of Conversion is time-consuming, and if you want to know more about the conversion contact us.