Introduction to the Basic Terms:
- Section 2(92) defines unlimited company as a company not having any limit on the liability of its members.
- Section 2(21) defines company limited by guarantee as a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.
- Section 2(22) defines company limited by shares as a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.
Important Point to Consider:
Unlimited liability company is restricted from converting itself to a company limited by shared or guarantee in case where –
- its net worth is negative or;
- an application is pending before the ROC under CA,2013 or CA, 1956 provisions to strike off its name or;
- the company has defaulted in filing any of its annual returns or financial statement as required by CA, 2013 or CA, 1956 or;
- petition for winding up the company is pending or;
- the company hasn’t received yet the amount due on calls in arrears from is director for a period of not less than 6 months from the due date or;
- an inquiry, inspection or investigation is pending against the company under rule 37(8) of the Companies (Incorporation) Rules, 2014.
Step-by-step procedure
Step 1: Call a Board Meeting
- As per Section 18 and 173, hold a meeting of the board or pass board resolution to consider and approve the conversion of company into a limited liability company by shares or guarantee and the consequent amendment to the MOA (memorandum of association) as required.
- Approve draft notice of the general meeting along with an explanatory statement for the purpose of passing the special resolution.
- 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: Call a General Meeting
- A general meeting has to called per Sections 18,100, 110 and Secretarial Standards-2, to pass special resolution for such conversion.
- Resolution maybe passed by way of postal ballot.
Step 3: Advertisement in Newspaper
- Within 7 days of passing of the special resolution in the general meeting, the company has to publish a notice in Form INC-27A of the proposed conversion in two newspapers (English and vernacular) in the district where the registered office is situated.
- Also, copy of the notice has to be dispatched to every creditor and debenture holder as on date of the general meeting by registered post or speed post.
- Notice should also state that in case of any objection, it can be intimated to the ROC and the company within 21 days of the publication of the notice.
Step 4: Form and Document Filing
- A copy of the special resolution passed has to be filed with the ROC within 30 days of passing in Form MGT-14 along with the requisite documents and fees.
- An application has to be filed to ROC within 45 days of passing the special resolution in Form INC-27 for its conversion to a company limited by shares or guarantee. Has to be submitted along with requisite documents and fees.
Step 5: Certificate of Incorporation
- Then ROC shall consider the application and objections, if any, received by it and ensure that company has addressed the objections satisfactorily.
- Then issue Certificate of Incorporation (COI) in Form INC-11A within 30 days from the date of receipt of application.
Step 6: Post compliances
- Ensure that the alteration of MOA/AOA are reflected in all the copies of MOA/AOA.
- Section 18 read with Rule 37(7) of the Companies (Incorporation) Rules, 2014- ensure that the
- Company does not change its name for a period of 1 year from the date of conversion.
- Company shall not declare or distribute any dividend without satisfying past debts, liabilities, obligations, or contracts incurred or entered into before conversion.
Documents required
- For filing of approval of members- Form MGT-14
- Certified true copy of special resolution (SR) along with copy of explanatory statement under Section 102, CA, 2013.
- Altered copy of MOA/AOA.
- For conversion application- Form INC-27
- Minutes of the members meeting
- Copy of SR along with notice of general meeting and explanatory statement.
- Copy of altered MOA/AOA
- Declaration signed by not less than two directors of the company that such conversion shall not affect any debts, liabilities, obligations, or contracts entered into.
- Declaration of solvency signed by at least two directors of the company
- Certificate from statutory auditors that the company is solvent and that it is a going concern as on the date of passing of resolution
- Copy of newspaper publication
- NOC from sectoral regulator, if any.
- NOC from secured creditors, if any.
Conclusion
This whole process of conversion of unlimited liability company into a company limited by shares or guarantee can take between 45 days to 91-95 days. The board meeting will take somewhere between 1 day to 8-10 days and then the general meeting will be between 1 day to 23-25 days. Publication of notice by the company, filing of copy of SR with ROC and filing of conversion application to ROC will take between 28 days to 45 days. Receiving certificate from ROC will take around 15 days. The process is easy and swift in case the company wants to not be unlimitedly liable and secure the interest of its member by being bound only by guarantee or shares.
