Conversion of Private Company into Public Company: India
Private and Public Limited Companies in India
The companies today majorly rely upon the shareholders for their capital accumulation. However, there are companies like Private Companies in which the capital is accumulated without issuing the shares to the public and such a company is owned or managed by at least two persons. Such a private company is defined under Section 2(68) of Companies Act, 2013.[1] However, the public companies have the ability to issue shares and the same is incorporated under their Memorandum of Association (MOA) and Articles of Association (AOA). The public companies are defined under Section 2(72) of Companies Act, 2013.[2] It should also to be duly noted that a subsidiary of public company will only be a public company.
Many companies at the time of incorporation opt to go for private company, as at the onset of its establishment due to the apprehension of raising funds through the public at such an early stage. But after the profits so earned by the companies and it becoming popular, there is a chance that raising capital through the public becomes a popular option, for the same, the conversion from private company to a public company comes to light. Furthermore, the companies also have an option for conversion to another form after their registration. This is possible, through the virtue of Section 13, 14 and 18 of the Companies Act, 2013 read with Rule 33 of Companies (Incorporation) Rules, 2014.
Conversion to a Public Ltd. Company- India
The conversion of a private company to a public company is only possible through the way of alteration of MOA and AOA. Subsequently, the filing should also be done in accordance to the E-Form INC-27. The same provision is enshrined under Rule 33 of Companies (Incorporation) Rules, 2014. Section 14 of Companies Act, 2013 directs towards the Articles of Association (AOA) and the same is referred under clause (1) sub-clause (a); the impugned provision enunciates upon the passing of a special resolution for the conversion of a private company to a public company.
The conversion of a private company to a public company can be understood well through the following step by step process:
- A seven day notice must be given to the directors of the company to convene the extraordinary general meeting for the conversion of the company. Such a notice should be in accordance to Section 173(3) of the Companies Act, 2013 (A shorter notice may also be given provided at least one independent director is present for the meeting.)
- The extraordinary general meeting should be held so as to pass a resolution which assents the Special Resolution, for conversion of a Private company into a Public company. This is done under Section 14 of the Companies Act, 2013.
- The e-forms should also be with the concerned Registrar of Companies for the alteration of Articles of Association (AOA). The form MGT.14 should be filed within 30 days of passing the special resolution. It should also be accompanied with the Form No. INC-27 and fee.
- On the receipt of the imperative documents, the Registrar of Companies shall satisfy itself that the Company has complied with the requisite provisions for registration of the company. The same has to be adjudged by virtue of Section 18 of the Companies Act, 2013.
- After being satisfied, the Registrar of Companies is to issue a new Certificate of Incorporation while simultaneously scrapping off the older one issued to the reformed private company.
The conversion mentioned above enables the public companies to freely raise capital through the way of free transferable shares. This also enables the new public company to create a brand identity and attract more customers. Moreover, it enables the company to take the benefit of the Section 78 of The Companies Act, 2013. It assists the company in accepting the deposit from the general public. Furthermore, the company should also be diligent while removing the word ‘private’ from their name.
The aforementioned deliberations clearly bring forward that the conversion of a company appears to an easy change but it is the result of an elaborate and tedious process. Many a times than not, such a process takes place when evidently a company looks for the prospects to grow or it has a view for expansion. Such a purview is only beneficial for a company and in a broader sphere, for the industry.
[1] “It means a company having a minimum paid-up share capital as may be prescribed, and 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.”
[2] “It means a company which—
(a) is not a private company;
(b) has a minimum paid-up share capital as may be prescribed.”