Preface
The conversion of a private limited company into a public limited company can be easily done by following the simple corporate proceedings prescribed in the companies act 2013. As per today’s business scenario, various companies initiate as private limited’s but later get converted into public limiteds. Conversion is done to take advantage of expanded and additional benefits associated with the public company.
To run a private company in India is much easier and quite simpler than a public one. Still, there are certain privileges that one can only get in a public limited company. Some of the renowned reasons why conversion takes place are due to an increase in the number of total members or to accept money from the general public, issuance of IPO, no restriction on transfer of shares etc. Today we’ll walk around the procedure of conversion of a private company into a public company. Also, we’ll explain public and private companies. Stay tuned to learn more.
Must Read: Explore 7 types of company registration in India.
What is a Private Limited company?
A private company is a firm managed under the private ownership of an individual or group of individuals. Private companies issue stocks and have different shareholders, but they don’t have the power to list their shares in public exchanges and are not issued through initial public offerings (IPO). The shares of these businesses are comparatively less liquid, and it’s extremely difficult to determine exact valuations. The liability of members in a private limited company is restricted to a number of shares.
Private companies in India are broadly divided into 3 types.
- Private Company Limited by Shares
- Private Company Limited by Guarantee,
- Unlimited company
What is a Public Limited company?
Those corporate entities that are traded on stock exchanges where shares can be traded or purchased by anyone are known as public limited companies. The shares and equities are offered to the general public. Stocks can be acquired either through stock market trading or via IPOs. To start a public company in India minimum paid-up capital of INR 5 lakhs is required, along with a minimum of 3 directors. The reason why people convert their entities into public is due to more growth and expansion opportunities.
Private to Public company conversion: Step-by-step Procedure
With a change in time and changes in the company’s needs, various business owners decide to change their company structure and expand their goals. Thus they evolve with time and adopt the public company structure as it suits their goals and aspirations better. The easily prescribed process, as per the companies act 2013, is defined below.
Step 1 – Conduct a Board meeting to pass a Board resolution
The directors are issued a notice regarding the board meeting and the agenda specified in it. The notice is issued to the respective addresses of every board member minimum of 7 days before the board meeting. The matters that will get discussed must be listed in the agenda in short, the purpose for which the meeting is called, such as
- Conversion of Private limited to Public limited company
- Amendment in MOA/AOA
Notice should also include the date, time and place of the meeting. Also, pass a board resolution for the increase in the number of directors. As per the companies act, at least 3 directors must get selected.
Step 2 – Alter MOA and AOA
A Memorandum of Association (MOA) is an important document that comprises incorporation details, goals, and objectives along with the powers that the company contains. Apart from that, it also includes the company’s relationship with outsiders. Thus with the change in the structure, it is necessary to amend the entity’s MOA, as the change will bring new challenges and opportunities. Also, delete the word private from documents.
Article of Association (AOA) defines rules and regulations laid down by the entity governing laws, details regarding management, along with internal affairs. With the amendment, all these factors will get altered and changed as per the new structure.
Step 3 – Issue a notice regarding EGM and holding EGM
After the conduct of the board meeting, the appointed director and company secretary must circulate the EGM (Extraordinary General Meeting) notice to Auditors, Shareholders and Directors. The EGM notice must not be given 21 days before the EGM date.
Step 4 – File an E-form MGT -14
File an e-form of MGT -14 within 30 days of the passing of a special resolution. Also, attach documents such as general meeting notice with a special resolution and freshly altered MOA/AOA.
[Note – The form is available on the MCA portal]
Step 5 – File an E-form INC -27
Fill out e-form INC-27 for conversion of a company with ROC within 15 days of passing the special resolution. Attach required documents, such as a copy of the special resolution, minutes of board meetings, altered MOA/AOA, and a list of company members, along with the essential details.
New Incorporation Certificate
After the completion of the approval process, the ROC will grant a new incorporation certificate having a unique identification number.
Post conversion requirements
- A fresh PAN card
- All Business letterheads with the updated name
- Bank account details of the company updated
- Intimation to respective authorities
- Printed copies of the new MOA/AOA
(Note: The above article is prepared by keeping the updated provisions/circulars/notices of the companies act 2013 in mind. The information presented may vary from time to time and profile to profile. We are not responsible for any damages/penalties caused.)
Benefits of Private to Public Limited Conversion
The prime reason why business owners opt for conversion from private to public is due to the associated benefits.
- Increased Credibility
- Access to more business capital
- Quick share transfer
Documents required for conversion
- Digital Signature Certificate (DSC) and Director Identification Number (DIN) of every director
- Identity and Address proof of all directors
- Passport-size photo of every director
- Address proof of business – Property papers or place where the premise is owned
- Rent agreement – In case of rented property and NOC from the owner
- Certified copy of latest financial statements
- Copy of utility bills
- Copy of latest ITR acknowledgement
Final Thoughts
Business owners opt for a public limited company when they have big aspirations and wide expectations from their entity. When an entrepreneur is willing to take his business on a large scale and needs money from the general public to fund his business, in such scenarios public limited company happens to be the best company structure that one can opt for.
When a business evolves with time, the change in structure is a must-take step. Hence in today’s module, we have deeply analysed the step-by-step procedure of converting a private limited into a public limited company, including the benefits and documents required.
Suggested Read
MSME classification – Explained
Different Types of company in India
Types of GST returns and their due dates
How to convert a private limited company into a public limited company: Frequently Asked Questions
Q.1 Why do companies change from private to public?
- Increased money availability
- Increased commercial credibility
- Growth possibilities
- Share offerings to the public.
Q.2 Can I convert a private limited company to a One person company?
For converting a private limited company into one person company (OPC), the company must file the required e-forms with the registrar of companies (ROC).
Q.3 Can I run multiple businesses under a private limited company?
Yes, a company can carry on multiple businesses and even activities not associated with the company’s objective in a private limited company.
Q.4 How long will it take to convert a private company into a public?
30 Days.
Q.5 Is Alteration of name compulsory while conversion?
Yes, the private limit is replaced with the limit.
