Conversion of Private Company Into A Public Company

Introduction

Private limited companies are a dime a dozen, but every private limited company, at some point, wishes to turn public to increase scalability. The question generally put across is, “Why go public?” The answer lies in certain distinct differences that arise between private limited companies and public limited companies. 1. Public companies offer the option of Initial Public Offering (IPO). Here, by going public, the company is offering its shares to the general public. 2. The option of IPO thereby removes the restriction on the transferability of shares, which is a feature of private limited companies. 3. There is no cap with regards to the maximum number of members in a public limited company, thereby allowing them to raise and gain easy access to funding. Therefore, growth and flexibility are ideally the reasons for the switch from private to public.

Key Considerations:

  • Members of the Company shall approve the conversion of Company into Public Company by Special Resolution.
  • The name clause of the Memorandum needs to be amended to exclude the word 'Private'.
  • If the Company has less than 7 members, appropriate steps should be taken to increase them to at least 7.[Section 3(1)(a)]
  • If the number of directors of the Company is two, the number of directors should be increased to at least 3.[Section 149(1)(a)](Pl. ref. procedure for Appointment of Additional Director)
  • Increase the authorized share capital and paid-up share capital as prescribed for a public company, if required. Presently, the minimum capital is not prescribed. (Pl. ref. procedure for increase in authorized and paid-up capital of the company)
  • The Articles of the Company shall be suitably amended for the removal of restrictive provisions applicable to a Private Company. It is advisable to adopt a new set of Articles applicable to a Public Company.
  • The company has not defaulted in the filing of Annual Returns or Financial Statement or any other document due for filing with the Registrar. [Rule 29(1) of Companies (Incorporation) Rules, 2014]
  • The company has not defaulted in repayment of matured deposits or debentures or interest on deposits or debentures. [Rule 29(1) of Companies (Incorporation) Rules, 2014]

Procedure for conversion of a Private Company into a Public Company:

[Section 14, Section 15, Read with Rule No. 29, 33 of the Companies (Incorporation) Rules, 2014]

  1. Issue not less than 7 days notice and agenda of a Board meeting, or shorter notice in case of urgent business, in writing to every director of the company at his address registered with the company and call a Board meeting to consider the proposal of conversion of Company into a Public Company. Also, follow the procedure prescribed for issuing and signing of notice of Board Meeting.
  2. Hold a meeting of Board of Directors-       
  3. To pass the necessary Board Resolution for approving the proposal of conversion of Company into a Public company, subject to the approval of Shareholders by Special Resolution in the general meeting of the company
  4. To delegate authority to Company Secretary or any one director of the company to sign, certify and file the required form with the Registrar of Companies and to do all such acts and deeds as may be necessary to give effect to the proposed conversion.
  5. To fix the day, date, time and venue for holding a general meeting of the Company.
  6. To approve the draft new set of Memorandum and Articles of Association meeting the requirements of a Public limited company.
  7. To approve the draft notice of general meeting along with explanatory statement annexed to the notice as per the requirement of the Section 102 of the Companies Act, 2013. The notice of a general meeting must contain the text of special resolution for conversion of Company into a Public company and consequent amendment in Memorandum and Articles of Association of Company.
  8. To authorize the Director or Company Secretary to sign and issue a notice of the general meeting.
  9. Prepare and circulate draft minutes within 15 days from the date of the conclusion of the Board Meeting, by hand/speed post/registered post/courier/e-mail to all the Directors for their comments. Also follow the procedure prescribed for preparing, circulation, signing and compiling of Board Minutes.(Secretarial Standards-1 )
  10. Send notice of the General meeting proposing the aforementioned special resolution to all the shareholders, directors, auditors and other persons entitled to receive it, by giving not less than clear 21 days notice or shorter notice if the consent is given in writing or through electronic mode by not less than 95% of the members entitled to vote at such meeting, either in writing or through electronic mode (Section 101). Also, follow the procedure prescribed for issuing and signing of notice and convening of General Meeting.
  11. Hold the general meeting on the fixed day and pass the Special Resolution for conversion of company into Public company and altering the Memorandum of Association and Articles of Association including removal of restrictive provisions as applicable to Private Company in accordance with Section 14 of the Act, by 3/4th majority as per Section [114(2)(a)] [Section 14(1)(a)].
  12. Follow the procedure prescribed for preparing, signing and compiling of minutes of the General Meeting.
  13. File certified true copy of each special resolution(s) passed in a general meeting along with a copy of notice including explanatory statement and altered Memorandum and Articles of Association of Company with the Registrar in E-Form No. 14 under Section 117 of the Act within 30 days of passing Special Resolution in a general meeting along with fee as specified in the Companies (Registration offices and fees) Rules, 2014.
  14. For effecting the conversion of Private Company into Public Company, file an application in E-Form No. INC-27 with the Registrar along with prescribed fees within fifteen days of passing of Special Resolution along with the following attachments:
  15. Minutes of the members' meeting;
  16. Altered Memorandum of Association
  17. Altered Articles of Association
  18. List of members with a number of shares held, details of members voting in favour of and against the resolution and abstained from voting;
  19. Optional attachment(s) (if any).[ Section 14(2) Rule 33(1)of Companies (Incorporation) Rules, 2014]
  20. On the approval of E-Form No. MGT.14 and E-Form No. INC-27, Registrar will issue a fresh Certificate of Incorporation with the Changed name i.e. the existing name with the word “Private” deleted consequently upon conversion of company into a Public Company.[Section 13(3) & Rule 29(2)of Companies (Incorporation) Rules, 2014]                         

ACTION POINTS REQUIRED TO BE TAKEN AFTER GETTING A FRESH CERTIFICATE OF INCORPORATION:

  • Company may optionally issue a general notice in newspapers informing members and all other concerned persons and the public at large that the Company has been converted into a Public Company and its name has been changed from___Pvt. Ltd. to____ Ltd.
  • Every Alteration made in the memorandum or articles of the company shall be noted in every copy of the memorandum or articles as the case may be.[Section 15(1)]
  • Arrange printing of fresh copies of Altered Memorandum and Articles of Association with new Certificate of Incorporation;

Record minutes of a Board meeting and shareholder’s meeting in the minute's book within 30 days of the conclusion of the meeting along with the date of such Entry.[Section 118]

  • Arrange new rubber stamps with the new name, and all the stationery in the new name of the Company.
  • Change the specimen of Blank Share Certificates with the new name, if already printed.
  • Have painted the new name of the Company on outside every office, building etc. along with former name so changed [Pursuant to Sec 12(3)(a) and First proviso to Section 12(3)]
  • Arrange a new common seal engraved with the new name and adopt it at the meeting of the Board of Directors( Common Seal is optional now). [Pursuant to Sec 12(3)(b)]
  • Get its new name printed in its entire business letters, letterheads, Billheads, Invoice Forms, Receipt Forms and all other official publications along with the former name so changed. [Pursuant to Sec 12(3)(c) and First proviso to Section 12(3)]
  • Have its new name printed on hundies, promissory notes, bills of exchange etc. [Pursuant to Sec 12(3)(d)]
  • Inform about the conversion of the Company to all concerned persons/ govt. authorities like Central Excise Authorities, Customs Authorities, Sales Tax Authorities, Service Tax Department, Chief Inspector of Factories, and Regional Provident Fund Commissioner etc.
  • Intimate all the Banks where the Company is operating Bank Accounts about its conversion and file necessary applications and documents, as required by the Bank, with regard to change in the name and status of the Account holder.
  • Make application to Income Tax Department for Arranging New Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
  • Update the new name of the Company with the Basic Utility Service providers like Electricity providers, Telephone Internet connections in the name of the Company etc.
  • Inform all other Companies where the Company has made Investments, taken loans, taken Insurance Policies, entered agreements of any kind and to all stakeholders

 

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