Convert Private to Public Company

An entity can be incorporated under three classes in the form of Company i.e. as a one person company, Private limited Company or a Public Limited Company. Public limited companies can be further classified as listed or unlisted public company.

To commence business as a private limited company is beneficial at initial stage as administration and management of a private limited company is less cumbersome than public limited company. However, owners of private limited company may convert their company into a public limited company if they consider it fit for their business and further expansion.

1. Convert Private to Public Company

2. Introduction An entity can be incorporated under three classes in the form of Company i.e. as a one person company, Private limited Company or a Public Limited Company. Public limited companies can be further classified as listed or unlisted public company. To commence business as a private limited company is beneficial at initial stage as administration and management of a private limited company is less cumbersome than public limited company. However, owners of private limited company may convert their company into a public limited company if they consider it fit for their business and further expansion. 2

3. Reason for Conversion 3 To raise fund from public : Private companies are not allowed to raise money from general public as they are restricted to do so by its article of association. However a public company have always had an option to get itself listed on stock exchange and raise money from the public. Thus to acquire larger chunk of fund, private company may resort to opt for becoming public company. To create brand value : Private companies are generally closely held companies having limited stakeholder and lesser known among public. whereas public company are considered more in value as compared to private company due to its larger number of shareholders. Private companies often tend to convert into public company to gain brand value in the market. Expansion and growth of business : Over a period of time, Company understands the manner of operating business and it can recourse to explore the business on broader platform by converting its nature from closely held to public company.

4. 4 Nature of Public Company As per definition of public company given under 2(71) of Companies Act, 2013, "Public company" means a company which is not a private company   Thus to understand meaning of Public Company it is imperative to understand 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

5. 5 Nature of Public Company (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 ; Thus by definition it is clear that the prime restrictions which are imposed on a private limited company are not applicable in case of public limited company. We can summarise that public company can: freely transfer its shares; have members without any maximum limit; offer public to subscribe its shares;

6. Process of Conversion 6 A private company is allowed to convert itself into a public company by altering its basic feature as mentioned above. As per section 14 of Companies Act, 2013, Company can alter its Article of Association (AOA) having the effect of conversion of private company into public company. Such alteration requires prior approval of shareholders of the Company and when a company alter its AOA resulting in removal of restrictions as incorporated in the articles, such company shall from that date, ceases to be a private company. The procedural requirement to be complied by the Company is given below: Any director or person authorised by the Board will dispatch a notice to call for Board Meeting to consider the proposal of conversion of private company into public company. Notice shall be given as per section 173 of Companies Act, 2013 read with SS 1 on Board Meetings. Conduct Board Meeting to consider the feasibility of conversion. After assent of the board members, call for a general meeting for approval of members to alter the AOA and MOA. Dispatch notices for calling an EGM/ AGM to all the members in accordance with provisions section 101 of Companies Act,2013 read with SS 2 on General Meetings.

7. Process of Conversion 7 6. Accord approval of Members through Special Resolution at EGM/AGM for conversion of private company into public company. 7. File E form MGT-14 to submit special resolution with the Registrar of Companies. After approval of Form MGT 14, File E form INC 27 with the Registrar of Companies 8. The Registrar shall after considering the details filed in the form, approves the Form and fresh issue certificate of incorporation reflecting new name by removing the word “Private” from the name of the Company.

8. 8 Post Conversion Compliance 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. Post conversion, Company needs to confirm its structuring of board and members in compliance with above provisions. After conversion Company must have minimum 3 directors in the board of the Company and 7 persons as shareholder 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 removal of word “Private” from 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.

9. 9 Post Conversion Compliance 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. It is pertinent to note that the above stated regulatory framework are as per Companies Act, 2013 only, If any Company is registered with other any regulatory bodies like SEBI, RBI, MSME, IRDA , Companies have to follow additional compliance as prescribed by different regulators under which Company is registered. As conversion of private limited company into public limited company is allowed, companies act 2013 has also prescribed for vice versa i.e. conversion from public to private limited company.

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