The Conversion of Public Company into Private Company is mentioned in the Companies Act, 2013, and Incorporation of Companies Rules, 2014. The Private Company has less compliance as compared to Public Company to be followed under the Companies Act, 2013. The need for less compliance leads to increase Conversion of Public Company into Private Company. Before coming of the Companies Act, 2013, the National Company Law Tribunal (NCLT) has the power for the Conversion of Public Company into Private Company.
After certain amendments in the Companies Act, 2013 Conversion Procedures of Public Company into Private Company are in the hands of Central Government and the approval of public company into private company is given by the Regional Director, MCA.
What are legal provisions related to the Conversion of Public Company into Private Company?
Companies Act, 2013 and the Incorporation of Companies Rules, 2014 both mentions on the conversion of Public Limited Company into Private Limited Company. Ministry of Corporate Affairs on 18th December 2018 has by its notification amended the Companies (Incorporation) Rules, 2014 by introducing Companies (Incorporation) Fourth Amendment Rules, 2018.
Rule 41 has been added in the rules which provides for making application for conversion for public limited company into private limited company in accordance with the regulation.
The following provisions are related to Conversion of Public Company into Private Company:
- Section 13 of Companies Act, 2013, provides for the Alteration of Memorandum of Articles (MoA) of Company. The Conversion of Public Company into Private Company can be done if the Memorandum allows for the Conversion. Hence, to convert the Company into Private Company, the alteration of MoA is necessary.
- Section 14 of Companies Act, 2013, provides for Alteration of Articles of Association (AoA) for Conversion of Public Company into Private Company.
- Section 18 of Companies Act, 2013, provides for Conversion of Companies which are already registered. Section 18 provides for converting of any class of Company into another class by doing Alteration in MoA and AoA of the Company.
- The Companies Incorporation (Fourth Amendment) Rules, 2014, the Conversion of Public Company into Private Company is explained. The Central Government has wide powers to amend the said rules.
- It is requisite that the name clause of the Memorandum has to be amended to include the ‘Private’ word.
- The Articles of the Company shall be properly amended for the addition of limiting provisions that are related to a Private Company. It is advised to implement a new set of Articles applicable to a Private Company.
- The Company is not in default in filing the Financial Statement or the Annual Returns or any other document that is due for filing to the Registrar. [Rule 29(1) of Companies (Incorporation) Rules, 2014]
- The Company is not in default in repayment of the debentures or matured deposits or interest on debentures or deposits. [Rule 29(1) of Companies (Incorporation) Rules, 2014]
What is the Procedure for Conversion of Public Company into Private Company?
The steps followed for Conversion of Public into Pvt. are as follows:
Step-1 – The Company should send notice to hold a Board Meeting to the directors at least 7 days before the date of Board Meeting.
Step -2 – The Company should hold the Board Meeting as per the Rules prescribed under Section-173 of Companies Act, 2013. The approval of the following items should be done:
- To consider the proposal for Conversion of Public Company into Private Company.
- To approve amendments in MoA and AoA of the Company subject to the approval is subject to member’s approval through a special resolution.
- To fix time, date and place for General Meeting and authorize a Director or Company Secretary to send notice of General Meeting to member.
- To consider and consent the reduction of the total number of members to maximum of 200 members in the company.
Step -3 – The Company should send a notice at least 21 days before to convene General Meeting for approving items mentioned in Step 2 by passing a special resolution.
Step-4 – The Company should duly hold a General meeting for the approval of Conversion of Public Company into Private Company. The consent for the Alteration in MoA and AoA should also be given through a special resolution. In General Meeting, the quorum should also be checked. As per Section 146 of Companies Act, 2013, the presence of Auditor in the General Meeting is necessary, if not present, then check whether Leave of Absence is granted or not.
Step-5 – The form MGT-14 should be filed within 30 days of passing of the special resolution. The Form MGT-14 should be attached with the following documents:
- A true certified copy of Altered MoA
- A true certified copy of Altered AoA
- Notice of General Meeting with an explanatory statement
- A true certified copy of passed Special Resolution in General Meeting
Step-6 – An application should be filed within 60 days of passing of the special resolution to the Regional Director. The application should be filed in e-Form RD-1. The following documents should accompany the application:
- Copy of MoA and AoA with proposed alterations.
- Copy of the minutes of General Meeting held.
- The Board Resolution in which the authorization for Conversion is given.
- List of creditors and debentures holders should be attached
Step-7 – In accordance with rule 41(3) of the Companies (Incorporation) Rules, 2014, a List of Creditors and Debenture Holders shall be attached to the application, that is drawn up to the earliest practicable date before the date of filing of petition but by not beyond 30 days.
Meanwhile, an application should be advertised in Form INC-25A, in a vernacular newspaper in vernacular language in the district, and in English newspaper, which is circulated widely in the State.
Step-8 – According to the rule 41(1) of the Companies (Incorporation) Rules, 2014, as amended, an application in e-form RD-1 for converting the public company into private company shall be filed with Regional Director within 60 days from the passing of special resolution date. The application can be rejected by RD within 30 days period from the date RD asked for resubmission of application if the resubmissions are not made. A maximum of 2 resubmissions is allowed. After the submission of details to the Regional Director (RD), some more information can be asked by RD. These resubmissions should be submitted in 15 days.
If no objection is received in response to the advertisement, and the application is complete, the same can be put up for orders without hearing. The application submitted should be passed by RD within 30 days from the date of filing of an application.
If no order of approval, rejection or resubmission is made by RD within 30 days, the application filed is deemed to be allowed by the RD, and approval order shall be automatically issued to the applicant.
The RD can hold a hearing in case of objection received. The RD should give reasons in writing of the hearing and hearing should be held within 30 days. If no consensus is received for Conversion within 60 days from the date of filing of the application, the RD can reject the application within the stipulated period of 60 days.
Step-9 – The RD when approves the Conversion process, an order for such Conversion will be issued to the applicant. The said order shall be filed in Form INC-28 to Registrar of Companies (RoC) within 30 days from the date of passing of such an order.
What are the advantages of Conversion of Public Company into Private Company?
By the Conversion of Public Company into Private Company, it gets easier to meet the regulatory provisions and exercise greater control in the Company. The advantages of Conversion are as follows:
- The members of Private Company cannot issue their shares publicly. The shareholders need to discuss and take prior consent of the other shareholders for the transfer of shares. By putting a restriction on transfer in Private Company, the membership of undesirable persons can be prevented.
- The control of Company is in the hand of the owners of capital which is not so in the Public Company.
- The Private Company can grant Loans to Directors without the prior approval or consent of the Central Government.
- There is no requirement to hold a Statutory Meeting in Company as no outsider is a shareholder of the Private Company.
Conversion of Public Company into Private Company is time taking and needs to adhere to the various formalities prescribed in Companies Act, 2013. The Private Company has a benefit of less compliance over Public Company. Sometimes, there are controversies regarding the Conversion, but if the consensus of all the shareholders is obtained the process of Conversion would go smoothly and efficiently. The process of Conversion is long-lasting and lengthy. We at Corpbiz have professionals to help you in the process of Conversion. Our professionals assist you and will assure the successful completion of your work.
Read our article:Conversion of Private Company to Public Company: A Complete Summary