A Private Company may in want of expansion and development of its company wants to convert to Public Company. Conversion of Private Company into Public company will enable it to offer its shares to public and to raise money for future expansion or for working capital requirements. Such conversion of Private Company into Public Company does not affect the legal personality of the Company. The present article provides information about the procedure, advantages and documents required for converting Private Company into public company.
Private Company v. Public Company:
A Private Company is a company which has a minimum of two members and a maximum of two hundred members. The Rights to transfer its shares are restricted and it is prohibited from offering its shares to public.
A Private Company has been defined under Section 2(68) of the Companies Act,2013 as: “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
A Public Company is a publicly held company, it is a corporation whose ownership is dispersed among the general public in many shares of stock which are freely traded on a stock exchange. The minimum number of members required in a Public Company is 7.
A Public Company has been defined under Section 2(71) of the Companies Act,2013 as : “PUBLIC COMPANY” means a company which—
(a) Is not a private company [AND];provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ;
Advantages of Converting Private Company into Public Company:
- It is easier to raise funds,
- A Public Company portrays a better prestige in the marketplace,
- No Limitation to maximum number of members.
- Transfer ability of Shares- The shares of Public limited company are more transferable than those in the Private.
- Exit Strategy- A Public company can exit the business at some point of time easily, transfer ability of shares and market prestige can help them getting a good bid from potential suitors.
How to Convert Private Company into Public Company:
To convert a Private Company into Public Company one must fulfil the following requirements:
- It will have to comply with all the provisions of the Companies Act applicable to Public Company.
- In case the number of Directors in a Private Company were two it must be raised to at least three.
- The word “Private” shall be removed from its name and be replaced with “Public”.
- If the Company has less than 7 members, it must be raised to at least 7 members.
- Members of the Company shall approve the conversion of Private Company into Public Company by Special Resolution.
- Increase the authorised share capital and paid up share capital as prescribed for Public Company.
- The Article of the company shall be suitably amended by removing the restrictive provisions applicable to Private Company.
- Company has not defaulted in repayment of matured deposits or debentures or interest on deposit of debentures.
- Company has not defaulted in filing of financial statements or Annual Returns or any other document due for filing with the Registrar.
Procedure for Conversion of Private Company into Public Company:
- Board Meeting must be conducted, to discuss the following Agenda items:
- Approving conversion of Company into Public Company subject to approval of Shareholders.
- Adopting new set of Memorandum of Association and Article of Association subject to approval of Shareholder.
- Fix date, time and venue for conducting Extraordinary General Meeting.
- Approve notice for conveying Extraordinary General Meeting and authorize someone to circulate notice.
- Issuance of Notice for General Meeting: A notice shall be issued to all the members by giving 21 days clear notice. However, General Meeting can also be conducted at a shorter notice by taking approval of more than 95% of shareholders entitled to vote.
- Convene and hold General Meeting for passing Special Resolution for the proposal of conversion and adoption of new set of Article of Association and Memorandum of Association.
- Filing of E Form MGT-14: File MGT-14 within 30 days of passing Special Resolution with Registrar of Companies.
- Filing of E Form INC-27: File INC-27 within 15 days of passing Special Resolution with Registrar of Companies. Along with the following essential attachments:-
- Altered Memorandum of Association,
- Altered Articles of Association,
- Number of shares held by each member,
- Other attachments.
- Approval of E- Form MGT -14 and INC-27– The Registrar of Companies if find everything in order, will issue the fresh certificate of Incorporation and will close the former registration of Company.
Post incorporation compliance’s:
- After receiving the Certificate of Incorporation the Company may issue such notification in a newspaper informing the members and the general public that the company has converted from Private Company into Public Company and its name has changed from …Pvt. Ltd… to …Ltd.
- Make application to Income Tax Department for arranging new PAN and TAN.
- Update the name of the company in every contacts be it electricity provider, or other companies doing business with it.
The conversion of a Private Company to Public Company does not give birth to a new Company. Such Conversion does not affect the legal personality of the company.
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