If you’re wondering how to convert a public company into a private company, the process might seem a bit complicated at first. However, when broken down into clear steps, it becomes much easier to understand. This guide will walk you through each stage of the public-to-private company conversion process, explaining everything in simple terms.
Whether you’re a business owner, a chartered accountant, a company secretary, or just curious about the process, this article will provide you with all the essential information you need to make the conversion successfully.
What Does it Mean to Convert a Public Company into a Private Company?
A public company is a business that can be listed on a stock exchange, enabling it to raise capital by selling shares to the public. This structure allows the company to offer its shares to anyone interested. In contrast, a private company does not sell shares to the public and restricts the number of shareholders it can have.
In India, converting a public company into a private one is governed by the Companies Act of 2013. This legal process involves several steps to ensure the company meets the requirements for becoming a private entity.
Key Steps to Convert a Public Company into a Private Company
Let’s break down the steps involved in converting a public limited company to a private limited company:
Step 1: Obtain Shareholder Approval
The first step is to get approval from the company’s shareholders. This involves:
- Holding a board meeting to propose the idea of converting the company.
- Passing a special resolution at a general meeting where shareholders vote to approve the conversion.
A special resolution is a type of decision that requires a majority vote from the shareholders.
Step 2: Update the Company’s Articles of Association (AoA)
Once the shareholders approve the conversion, the next step is to update the company’s Articles of Association (AoA). The AoA outlines how the company operates internally, and it needs to be changed to reflect the shift from a public to a private company.
These updated Articles must be approved by the Regional Director (RD), a government official who oversees company matters.
Step 3: File Documents with the Registrar of Companies (RoC)
After getting approval for the updated Articles, the company must file the revised AoA and other required documents with the Registrar of Companies (RoC). This should be done within 15 days after receiving approval from the Regional Director.
Step 4: Update Company Documents
With the conversion process underway, the company will need to update several official documents:
- The company name may change to include the word “Private” (e.g., from “XYZ Limited” to “XYZ Private Limited”).
- The Memorandum of Association (MoA), which outlines the company’s structure and goals, will need to be updated.
- The Articles of Association will be updated with restrictions specific to private companies.
- A new certificate of incorporation will be issued to confirm the company’s new status.
Additionally, all official materials like letterheads and stationery must be updated to reflect the company’s new name and structure.
Step 5: File E-Form MGT-14 with the Registrar
After the general meeting and passing of the special resolution, the company must file an E-form MGT-14 with the Registrar of Companies. This form provides details about the special resolution, as well as the updated MoA and AoA. It must be filed within 30 days of the general meeting.
Step 6: Publish an Advertisement Announcing the Conversion
Before submitting the application for conversion, the company must publish an advertisement announcing its intent to convert from a public to a private company. This advertisement must appear in:
- A local newspaper in the regional language.
- A widely circulated English newspaper in the area.
The advertisement should be published at least 21 days before filing the application for conversion with the Regional Director.
Step 7: Submit an Application to the Regional Director
Next, the company must submit an official application for conversion to the Regional Director. This must be done within 60 days of passing the special resolution.
The application should include:
- The updated Memorandum of Association and Articles of Association.
- The minutes of the general meeting where the resolution was passed.
- A list of creditors and debenture holders, if applicable.
- Declarations confirming that the company limits its members to 200 and meets all other private company regulations.
Step 8: Wait for Approval from the Regional Director
Once the application is submitted, the Regional Director will review it. If everything is in order, the approval should take about 30 days. However, if there are any issues or objections, a hearing may be held before the approval is granted.
Once the Regional Director approves the application, the company can move to the next step.
Step 9: Finalizing the Conversion
After the Regional Director approves the conversion, the company must file two more forms:
- E-form INC-28 – This form submits the approval order from the Regional Director to the Registrar within 15 days.
- E-form INC-27 – This form completes the conversion process.
Once these forms are approved, the company will receive a new certificate of incorporation that reflects its new private company status.
Step 10: Post-Conversion Requirements
After the conversion is complete, there are several post-conversion tasks that need to be handled:
- Update stationery: Order new rubber stamps, business cards, and letterheads with the new name and structure.
- Reprint documents: Print new copies of the updated Memorandum of Association and Articles of Association.
- Inform stakeholders: Notify all relevant parties, including banks, creditors, and employees, about the company’s conversion.
- Tax registration updates: Apply for Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
- Change signage: Update office signage to reflect the company’s new name.
By completing these post-conversion tasks, the company can fully integrate its new status as a private entity.
Summary of Key Steps in the Conversion Process
To make the public to private company conversion process clearer, here’s a quick summary of the main steps:
- Get shareholder approval through a board meeting and general meeting.
- Update the Articles of Association and get approval from the Regional Director.
- File the required documents with the Registrar of Companies within 15 days.
- Publish an advertisement in local newspapers announcing the conversion.
- Submit an application to the Regional Director for approval.
- Receive approval and file post-approval forms with the Registrar.
- Complete post-conversion tasks, such as updating company documents, notifying stakeholders, and ensuring tax registrations are updated.
Conclusion
Converting a public company into a private company may seem overwhelming, but by following these clear and simple steps, you can navigate the process smoothly. This conversion offers greater flexibility and control over the company’s operations, as private companies are not subject to the same strict regulations as public companies. By carefully following each step, your company can successfully transition to a private limited company and enjoy the benefits it brings.
