Procedure for Conversion of a Private Company into a Public Company

Introduction

Section 2(71) of the Companies Act, 2013 (hereinafter, CA 2013) defines public company as a company which is not a private company and has a minimum paid up share capital as maybe prescribed. And Section 2(68) of the Act defines private company to be a company having a minimum paid up share capital as maybe prescribed. It restricts the right to transfer its shares. Further, except for a One Person Company, maximum members can be two hundred. In private company, the Act prohibits any invitation to the public to subscribe for any securities of the company.

Step by Step Instructions to Convert Private Company into a Public Company

Step 1: Call a Board Meeting

• As per Sections 14 and 173 and Secretarial Standards 1, conduct a board meeting or pass a board resolution by circulation to consider and approve the conversion of the company into a public company.
  • At the board meeting, relevant points such as transfer of shares to increase the number of members to a minimum of seven has to be considered.
  • Also consider the alteration of MOA/AOA (Memorandum of Association/Articles of Association) of the company.
  • Fix day, date, time, and agenda for the general meeting wherein a special resolution has to be passed to give effect to the change.
  • Approve draft notice of the general meeting with an explanatory statement for purpose of passing the special resolution.
  • Authorize CS or any other officer to issue notice of the general meeting under the authority of the Board to every member and every other person entitled to it.

Step 2: Filing of forms and documents

• The company has to file return of appointment of additional director with the ROC within 30 days from the date of appointment in Form DIR-12 along with requisite documents and fees.
  • Also, necessary entries have to be made in the register of directors and key managerial personnel and their shareholding and register of contracts or arrangements in which directors are interested by mentioning in Form MBP-4.

Register of Members

• In conformity with Section 88 read with rule 5(1) of the Companies (Management and Administration) Rules, 2014, necessary entries are to be made in the register of members in Form MGT-1 within a period of 7 days from the conclusion of board meeting.
• The date when board resolution was passed to approve the transfer of shares to increase the number of members should also be mentioned.

Call a General Meeting

• A general meeting should be held in accordance with Sections 14,100 and 110 and Secretarial Standards-2 to pass a special resolution to approve conversion to a public company, delete the articles which are required to be included in the AOA of a private company only, delete the word ‘private’ from the name and to regularize additional directors, if any by ordinary resolution.
• Such a resolution can be passed by means of postal ballot also.

Filing of Forms and Documents

• As per section 170 read with rules 17 and 18 of the Companies (Appointment and Qualification of Directors) Rules, 2014 file a return in Form DIR-12 containing the details of director(s) with the ROC within 30 days of appointment in general meeting.
• Make relevant entries in the register of directors and key managerial personnel (KMP) and their shareholding.
• Further, per section 117 read with rule 24 of the Companies (Management and Administration) Rules, 2014 a copy of the special resolution along with an explanatory statement has to be filed with the ROC within 30 days of passing in Form MGT-14.
• An application in Form INC-27 has to be filed to effect conversion of a private company into a public company with the ROC along with requisite documents and fees.

Certificate from ROC

• As per Section 18(2) of CA, 2013, when the ROC is satisfied he shall issue a fresh certificate of incorporation (COI).

Post Compliances

• As per Section 15(1) of CA, 2013 ensure that the alteration(s) made in MOA/AOA is noted in every copy of MOA/AOA.
• Further, to conform to section 12(3), paint or affix new name outside office; print new letter heads, engrave name on official seal.
• Inform the change in the name to concerned authorities.

Documents Required

Following documents are required to give effect to conversion of a private company into a public company-

1. Return of appointment of additional director- Form DIR-12.
2. Written consent of the director in Form DIR-2.
3. Certified true copy of the board resolution.
4. Return of appointment of director(s) at general meeting- Form MGT-14.
5. Certified true copy of special resolution along with copy of explanatory statement under S.102
6. Altered copy of MOA/AOA.
7. Conversion application- Form INC-27.

Estimated Timeline

1. The overall process can take somewhere between 13 days to 86-90 days.
2. Board meeting may be completed in 1 to 10 days.
3. General meeting may take from 1 day to 25 days.
4. Filing of a copy of special resolution with ROC will take between 1 day to 30 days.
5. Filing of conversion application with ROC will take around 5 days.
6. Certificate from ROC will take between 5 days to 20 days.

Conclusion

Despite having many benefits such as limited intervention by the government and tax benefits, private companies face problems in term of raising finances and expanding into different sectors as the need for more members arises and private can only have 200 people maximum. Hence, the above enumerated process can be adopted to convert the private company into a public sector company.