Conversion of a private company to a public company
Every company or business starts small but aims at going big at some point in time. Moments of expansion or taking a bigger leap to come into the lifetime of a company several times. There are also times when a company decides to shrink its operations due to its performance and insufficient resources. It is finally the company’s management who takes the call whether to go ahead with the decision of such restructuring or not.
Taking a business to a larger scale equally brings in a lot of benefits and responsibilities to be fulfilled by the company. Apart from arranging for the necessary business resources, the companies in India are also bound to stick to the legal requirements provided by law for the same. Usually, due to limited finances and a limited impact on the market, a company is initially formed as a private company. However, once the company’s growth is such that it is capable enough to gain the confidence of the general public in its business affairs, it may convert itself into a public limited company.
As per the Indian company law, a private company means a company that includes the following conditions in its Articles of Association:
Where 2 or more members of a private company hold the shares jointly, they shall be considered as a single or one member.
While computing the number of members of a private company (where the maximum limit is 200), the current, as well as the former employees who are members of such a company, shall not be included in the limit of 200 members.
Although an OPC (One Person Company) is granted the status of a private limited company by law, it is exempted from the condition of having a maximum of 200 members which is otherwise applicable to a private company.
A public company as provided by law is such a company that is not a private company.
The requirement of minimum paid-up share capital for both public and private companies are no longer applicable due to the amendments brought in by the Indian company law.
Having discussed the basic elements of both types of companies, we shall hereafter look at the legal provisions to be complied with by a private company to convert itself into a public company.
A private company intending its conversion into a public company shall comply with the following conditions:
1) Alteration of its Articles of Association: A private company shall alter its articles of association to the effect that all the three aforementioned conditions, shall be deleted or removed.
A special resolution approving such alternation must also be passed.
2) Removing the word “private limited”: A private company is required to add the words ‘private limited’ to its name. However, since it intends to be converted to a public company, it no longer can be called a private company and hence the words ‘private limited’ shall be deleted from its name along with the passing of a special resolution approving the same.
3) Have the minimum number of members and directors as required for a public company: A public company must have a minimum of 7 members and 3 directors. Similarly, a private company wanting to convert itself to a public company shall also increase the minimum number of members and directors to 7 and 3 respectively.
It must be noted that a private company shall be converted to a public company on the date of passing the special resolution as aforesaid.
Whereas the deletion of the word private shall only come to effect once a fresh Certificate of Incorporation is issued to the company so converted by the Registrar of Companies.
The application for converting a private company to a public company shall be made in Form INC.27 along with the prescribed fees.
Conclusion:
A private company on becoming a public company enables the promoters and the management of such a company to invite more funds from the public in the form of capital. This results in the business getting expanded and the creation of more business opportunities. As the minimum paid-up share capital requirement for a public company has been taken down, it has encouraged more businessmen to make their companies go public without having a specific amount mandatorily as capital. One must also bear in mind, that getting the public involved in a company means the company has to be more careful about its business affairs as it is a matter of public interest.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.
