A private limited company and its business can easily change their status to that of a public limited corporation or Company. The Resolution for this has to be approved at the board meeting and the general meeting. For this procedure, a special resolution is necessary. A unique solution would require more than three-quarters of the members present or a majority vote.
Converting a private limited business to a public limited corporation has several advantages, such as:
- The Company would have a better reputation with the legal system.
- In addition, the business can list its shares on a reputable stock market.
The Companies Act of 2013 and the Companies (Incorporation) Amendment Rules of 2020 oversee the conversion of a private limited company to a public limited company.
What is a public limited company?
A public limited company is an organization subject to regulation under the 2013 Companies Act. Shares of a public limited corporation may be listed on a stock exchange. Private limited companies are not authorised to provide these perks.
For a public limited corporation, a certain number of members is necessary. There must be a minimum of seven members in the public limited corporation. Some resolutions must be vetoed to convert a private limited company to a public limited company. In addition, the public limited Company would have the term “public limited company “at the end of its name.
Advantages of converting a private Company into a public company
The firm can profit from the following benefits as a result of the conversion process:
An inventory of shares
By changing its status from a privately limited to a public limited company, the firm can list its shares on a recognised stock market. This would be advantageous for a business looking to raise money,
Increase Investment Through Public Support
A public corporation can raise capital from the general public by listing its shares on a stock market. Shares of various types can be used for this. Preference, equity, and other types of claims are all possible investment vehicles for the Company.
The ability to transfer shares
Converting a private limited company to a public limited company allows the simple transfer of shares from one shareholder to another. This would not be feasible if the business is registered as a private limited company.
Enhanced Reputation
The firm’s reputation would improve if it converted from a private limited to a public limited corporation. Shares of a public limited corporation may be listed on a public stock exchange, which would automatically improve the Company’s reputation.
Acceptance
A public company may accept deposits following section 76 of the 2013 Companies Act.
The requirements for converting a private limited company to a public company
At least one director must have a digital signature certificate generated and holding validity in their name.
- Seven individuals must be appointed shareholders for the firm to qualify as a public limited company.
- All directors must have an identification number called a director identification number (DIN).
- Director and Shareholder;
A person may be chosen to serve as a director and a shareholder.
- Three Directors;
A public corporation must have a minimum of three directors to operate.
Primary Regulatory Body for converting a private company to a public limited company
The Registrar of Companies and the Ministry of Corporate Affairs are the central regulatory bodies responsible for regulating the conversion of private limited companies to public limited companies.
For the conversion of a private company to a public company, the Companies Act 2013 and related laws would apply in addition to the aforementioned regulatory agencies.
Under the 2013 Companies Act, the term “private limited company” or “private company” is defined under Section 2(68). According to the Company’s articles, certain businesses are not permitted to transfer their shares. Public limited corporations are defined under Section 2(71) of the Companies Act of 2013. According to the criteria of the stock exchange, these firms are permitted to transfer and list their shares.
Section 3 of the Company’s report covers the firm’s objectives. The Memorandum of Association contains the purposes clause (MOA), which must be changed for the corporation to become a public limited company.
Section 18 of the Companies Act states that a corporation may pursue the conversion of a private limited company into a public limited company. The 2013 Companies Act’s provisions must be followed. The Act is changing the MOA and AOA.
Section 149 of the Companies Act deals with appointing the Company’s directors. A public limited company has more directors than a private limited company.
Section 13 and Rule 29 of the Companies (Incorporation) Amendment Rules, 2020, provide that the MOA must be changed when a private limited company is converted to a public limited company.
The Companies (Incorporation) Amendment Rules, 2020, Section 14 and Rule 33. This clause and section deal with changing the Company’s AOA.
How do you convert a PC company into a public company?
For the conversion of a private company to a public limited company, the following method and procedure must be taken into account:
- Notice for Board Meeting
- Hold the Board Meeting
- Provide the Notice to Hold the EGM or extraordinary general meeting
- Hold the EGM or an extraordinary public meeting
- File MGT-14 with the ROC or Registrar of Companies, the respective authority.
- File INC-27 with the ROC or Registrar of Companies, the respective authority.
- Approval of MGT-14 and INC-27
- Provide or obtain the Certificate of Incorporation
Date of Board Meeting Notice
The private Company’s directors must give notice of the Company holding a board meeting. Seven days before the meeting, notification must be given. This notification must specify the agenda of the meeting. The following items are to be on the board meeting’s agenda:
- Special Resolution needs to be passed in the session held
- Requirements and the time of holding an Extraordinary General Meeting
- Approval of the EGM.
Convene the Board Meeting
The following action for the business is to hold a board meeting. The following must be authorized at the board meeting:
- Make and keep the Resolution for the conversion of a private limited company to a public limited company
- Obtain the list of creditors of the Company and finalize the same.
- Obtain approval for the drafts of the changed MOA or Memorandum of Association and AOA or Articles of Association
- Consider fixing the time and place for the EGM or extraordinary general meeting.
The Notice to Hold an EGM
The directors must give shareholders notice of the Extraordinary General Meeting (EGM) at least 21 days before the meeting, as per the following stages of the board meeting. The timeframe must be determined by giving 21 clear days’ notice.
Retain the EGM
The day is for the firm to have an extraordinary general meeting (EGM). Here, a special resolution that needs a majority vote must be deemed to have been approved. The meeting directors must also consider the agreed Memorandum of Association (MOA) and Articles of Association (AOA).
Post-conversion requirements for a private company to become a public company
The following are some items to be complied with after the Company adheres to all the requirements for converting a private limited company into a public one. This has to be carried out by the Company such that they ensure compliance with the needs of the Companies Act, 2013:
- Updating the old registers, letterheads, and other important company documents.
- Communicating the conversion with all the regulatory and other authorities to avoid any penalty or fine that may arise.
- Apply for a new permanent account number or PAN.
- Communicate formally as well as informally with all the relevant stakeholders.
- Keep copies of the Articles of Association and Memorandum of Association ready with respect to the newly converted Company.
- Ensure the number of directors is increased by duly appointing them.
- Obtain a new bank account or change or upgrade the existing bank account of the Company to match that of the converted Company.
What forms are required to convert a private company to a public company?
For the conversion of a private limited company to a public limited company, the following forms are necessary:
MGT Form 14
The Registrar of Companies must get a copy of this. The EGM notice, the amended AOA and MOA, the statements with justifications, and the resolutions adopted at the EGM must also be given to the ROC.
INC Form 27
The Registrar of Companies must get a copy of this. The EGM notice, the amended AOA and MOA, the statements with justifications, and the resolutions adopted at the EGM must also be given to the ROC. The meeting minutes must also be given to the ROC.
What documents are required to convert a private company to a public limited company?
The conversion of a private limited company to a public limited corporation requires the following documents:
- Details and specifics of the shareholders’ Permanent Account Number NSSHAREHOLDERS)
- If the shareholder is a foreign national, a copy of that person’s passport must be submitted.
- A copy of the Aadhaar Card and Voter ID is the shareholders’ and directors’ identity.
- Water, electricity, and other utility bills are acceptable.
- The owner’s NOC or No Objection Certificate, or the registered office in case it is not an owned space, along with;
- Rental Agreement and additional registered office paperwork, if any, are available.
If the person is a foreign national, the required authorities must notarize all of the documents to ensure the validity of the records submitted.
- Articles of Association or AOA and Memorandum of Association or the MOA
- A copy of the business’s certificate of incorporation and the Company’s income tax returns
- Most companies’ Audited Financial Statements.
The Companies Act of 2013 establishes, incorporates, and regulates Public Limited Companies. The ratio of each shareholder’s shares or capital determines how much ownership each has. Additionally, investors and the general public can readily transfer ownership by exchanging the Company’s shares on the open platform of the Company’s Stock Exchange Markets. The shareholders agree upon a defined ratio for how they will split the Company’s profits, and their liability is limited to the amount of money they have invested in the business.
Going public also has the benefit of being a stock market-listed company. Due to this, businesses can grow their operations more quickly and have better access to finance. Companies listed additionally often have much more compliance work since they must comply with SEBI requirements. As a result, before the firm decides to go public, it gives it a lot of consideration and does extensive preparation.
A private firm could desire to change its status to a public limited company for several reasons, but the main one is to issue shares to obtain capital on the open market. Now that the corporation is available for trading, investors qualified to do so will be allowed.
In contrast to private equity funds, raising substantial amounts of money will be simpler since a wide range of investors will be able to invest in the business. With more capital, the Company can invest in more projects promoting internal growth.
Conclusion
According to section 18, the ROC must be persuaded that the firm complies with the requirements for registering a company after receiving the documentation for converting a private limited company into a public limited company. Once they register the documents that have been presented for alteration under the particular class of the Company, the public limited company registration will be finished. If persuaded, they will encapsulate the prior registration and issue a new certificate of incorporation.
