Conversion of Public Limited to Private Limited Company
Introduction
MCA on 18th December, 2018 by amendment inserted Rule 41 under Companies (Incorporation) Rules, 2014 for conversion of Public Companies into Private Companies and assigned its power to Regional Director for approval of conversion of Public Companies into Private Companies.
Mandatory Requirements
- Name clause of Memorandum needs to be amended to include the word ‘Private’.
- The Articles of the Company shall be suitably amended for the insertion of restrictive provisions applicable to a Private Company. It is advisable to adopt a new set of Articles applicable to a Private Company.
- Company has not defaulted in 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]
- 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]
Advantages of Conversion of Public Company into Private Company
The advantages of Conversion are as follows:
- The members of Private Company cannot issue their shares publicly. The shareholders need to discuss and take prior consent of the other shareholders for the transfer of shares. By putting a restriction on transfer in Private Company, the membership of undesirable persons can be prevented.
- The control of Company is in the hand of the owners of capital which is not so in the Public Company.
- The Private Company can grant Loans to Directors without the prior approval or consent of the Central Government.
Prerequisites of Conversion of Public Limited Company to Private Limited Company
Procedure For Conversion of a Public Company to Private Limited Company
Convene Board Meeting
The very first step is to convene Board Meeting for passing of Board resolution to get in principal approval of Directors for conversion and to convene Extra Ordinary General meeting to take approval for conversion from the shareholder of the Company. Points to be considered for convening of Board Meeting:
- Clear 7 days’ notice along with agenda and notes is to be circulated among the Directors of the Company.
- Notice of meeting should clearly mention the day, date, place and time of meeting.
Matters to be Considered in Board Meeting:
- To take in-principal approval for conversion of Public Company into Private Company.
- To obtain approval for Alteration in Memorandum and Articles of Association and recommend the proposal for conversion to be considered by way of special resolution by the members in general meeting
- To finalise the date, time, and venue of the general meeting and authorizing a director or any other person to send the notice for the same to the members.
- To approve General Meeting Notice along with explanatory statement to be annexed with notice as per Section 102(1) of the Act.
Issue Notice of General Meeting
Notice of General Meeting shall be circulated at least 21 days before the actual date of General Meeting. General Meeting can also be called at a Shorter Notice provided the consent of members as is obtained as per the provision provided in Section 101 of the Companies Act, 2013. The notice shall be issued to the following persons:
- All the Directors
- Members
- Auditors of Company
The notice shall specify the place, date, day and time of the meeting and contain a statement on the business to be transacted at the General Meeting.
Hold General Meeting
Take attendance of the person attending the General Meeting and ensure minimum Quorum is present.
Pass Special Resolution for conversion of Public Company into Private Limited Company along with
- Approval of Alteration in AOA
- Approval of alteration in Memorandum of Association
Filing of Special Resolution Passed for Conversion With ROC
The Special Resolution passed for conversion of Public limited into Private limited shall be filed in Form MGT-14 (Filing of Resolutions and agreements to the Registrar under section 117) with the Registrar along with the requisite filing within 30 days of the General Meeting, along with given documents:-
- Certified True Copy of the Special Resolution passed along with explanatory statement;
- Copy of General Meeting Notice as circulated to the members along with annexures;
- A copy of the Altered Article of Associations and Memorandum of Association.
Drafting and Filing of Application with Regional Director (In Form Rd-1)
Application to Regional Director shall be filed within 60 days from the date of passing of Special Resolution in e-form RD-1.
Following documents are required to be annexed with the application for conversion of Public Company into a Private Company under Section 14(1) of the Act:
- Statement stating grounds on which the application is made
- Copy of the memorandum and articles of association with proposed alterations
- Certified Copy of Minutes of General Meeting (mentioning details of votes cast in favour or against)
- Attendance Sheet of Members present in General Meeting
- Board Resolution authorization to file application for conversion (dated not earlier than 30 days)
- Copy of amended MOA & AOA of the Company
- Declarations by the Directors and KMP
- List of Creditors and Debenture holders
- Copy of News Paper Advertisement
- Power of Attorney or Memorandum of Appearance
- Details of conversion made, if any, within last five years and outcome thereof along with copy of order
- Details as to whether the company is registered under section 8
Other Documents to be attached with the petition
a) Declaration in form of Affidavit:
Declaration by Key Managerial Personal (If company not having KMP then by any Director) i.e. with regard to the following:
- the Company limits its members to 200, and that no deposit has been accepted in violation of the Act and rules by the Company.
- there is no non-compliance of Section 73 to 76A, 177, 178, 185,186 and 188 of Act an rules made thereunder
- that no resolution in terms of Section 179(3) is pending to be filed and
- that the company was never listed on stock exchange, and if listed, then the Company has complied with the relevant provisions
b) Details of Creditors and Debenture holders:
A List of Creditors and Debenture Holders shall be annexed to the application which is drawn up to the latest practicable date preceding the date of filing of petition by not more than 30 days, setting forth the following details, namely:-
- names and address of all creditors and debenture holders of the company;
- the nature of debts, claims or liabilities and their respective due amount;
- the value, in respect of any contingent or unascertained debt or any such claim admissible to proof in winding up of the company, so far as can be justly estimated of such debt or claim:
c) Affidavit verifying list of Creditors and Debenture holders:
The applicant company shall file an affidavit to the effect that they have made a full enquiry into the affairs of the company and, having done so, have formed an opinion that the list of creditors is correct, and that the estimated value as given in the list of the debts or claims payable on a contingency or not ascertained are proper estimates of the values of such debts and claims and that there are no other debts of , or claims against, the company to their knowledge. Further, the affidavit shall be signed by the company secretary of the company, if any, and not less than two directors of the company, one of whom shall be a managing director, where there is one,
d) Publication of News Paper Advertisement:
The company shall at least 21 days before the date of filing of application:
- News Paper Advertisement: Newspaper advertisement for conversion shall be given in Form No. INC 25A, at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and at least once in English newspaper published in English language circulating in that district. (Advertisement shall be published in widely circulated newspaper in the State in which the registered office of company is situated)
- Speed Post to Creditors: The Company shall serve, by registered post with acknowledgement due, individual notice to each debenture-holder and creditor; and
- Service of Petition to ROC/RD: serve, by registered post with acknowledgement due, a notice together with the copy of the application to the Central Government (Regional Director), Registrar of Companies and to the Securities and Exchange Board of India, in the case of listed companies and to the regulatory body, if the company is regulated under any other Act.
Filing Of E-Form Inc-28 And E-Form Inc-27
Pursuant to satisfying the queries of Regional Director on processing of E-Form RD-1, the Regional Director shall pass the order of approval for conversion of Public Limited into Private Limited and approve the E-form RD-1.
Once E-form RD-1 is approved, File e-form INC-28 with ROC within 15 days of receipt of order of conversion of Public Limited into Private Limited by Regional Director.
After the approval of form INC-28, the Company has to file Form INC-27 with ROC in respect to change the status of the company from public company to private Limited Company
With the Approval of FORM INC-27, the Concerned ROC shall issue the Certificate of such conversion from Public Limited to Private Limited.
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