A private limited company and its business can easily change its status to a public limited corporation or company. The resolution for the same has to be approved at the board meeting and general meeting. For this procedure, the passing of 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 ofa private limited company to a public limited company.
What is a public limited company?
An organization subject to regulation under the 2013 Companies Act is a public limited company. Shares of a public limited corporation may be listed on a listed stock exchange. Private limited companies are not authorised to provide these perks.
For a public limited corporation, a certain number of members are 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 a public limited company at the end of its name.
Advantages of converting the 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
The firm can list its shares on a recognised stock market by changing its status from privately limited to a public limited company. This would be essential for a business looking to raise money, making it an advantageous activity.
Increase Investment Through Public Support
The corporation, i.e., a public company, can raise capital from the general public by listing the shares on a stock market. Shares in a variety of 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. Listing the shares on a public stock exchange would automatically improve the company’s reputation.
Deposit Acceptance
A public company may accept deposits following section 76 of the 2013 Companies Act.
The requirements for converting a private limited to a public company
At least one director must have a digital signature certificate generated and holding validity in their own 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 to a public limited company
The Registrar of Companies and the Ministry of Corporate Affairs are the central regulatory bodies in charge of 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 organizational 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 their shares as well as list them.
The firm’s objectives would be covered under Section 3 of the Companies Act. The Memorandum of Association contains the purposes clause (MOA). The purposes clause 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 while changing the MOA and AOA.
The Companies Act’s Section 149 deals with appointing the company’s directors. A public limited corporation 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 to Converting a Private 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 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 before holding a board meeting. Seven days before the meeting, notification must be given. This notification must specify the meeting’s agenda. The following items need to be on the board meeting’s agenda:
- Special Resolution which shall or needs to be passed in the session held
- Requirements and also the time of having an Extraordinary General Meeting
- Approval of the EGM.
Convene the Board Meeting
The next 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 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 provide shareholders notice of the Extraordinary General Meeting (EGM) at least 21 days before the meeting as the following stage of the board meeting. There must be 21 clear days’ notice given to determine the timeframe.
Retain the EGM
The next stage is for the firm to have an extraordinary general meeting or EGM. Here, a special resolution that needs a majority vote must be deemed to have been approved. The meeting directors must also consider the approved Memorandum of Association or MOA and Articles of Association or AOA.
Post-conversion requirements for a private company to 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 and get or update into a new Permanent Account Number or PAN.
- Communicate formally as well as informally to all the relevant stakeholders.
- Keep copies of the Articles of Association and Memorandum of Association ready w.r.t the newly converted company.
- Ensure increasing the number of directors by duly appointing them.
- Obtain a new or change or upgrade the existing bank account of the company to match with the converted company.
What forms are required to convert a private 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 or PAN.
- If the shareholder is a foreign national, a copy of that person’s passport must be submitted mandatorily.
- Copy of the Aadhaar Card and Voter ID is the shareholders’ and directors’ identification cards to be provided.
- Water, electricity, and other utility bills are acceptable.
- The owner’s NOC or No Objection Certificate for the registered office in case it is not an owned space, along with;
- Rental Agreement and additional registered office paperwork, if any, available.
The required authorities must notarize all of the documents if the person is a foreign national 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
- Company’s income tax returns
- Most recent Company Audited Financial Statements.
The Companies Act of 2013 establishes, incorporates, and regulates Public Limited Companies. The ratio of each shareholder’s shares or capital in the firm determines how much ownership each has. Additionally, investors and the general public can readily transfer ownership by exchanging the company’s shares on open platforms like Stock Exchange Markets. The shareholders agree upon a defined ratio for how they will split the company’s profits, and their liabilities are 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, it will be simpler to raise substantial amounts of money since a wide range of investors will be able to invest in the business. The company can invest in more projects promoting internal growth with more capital.
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.
A private limited company’s transformation into a public limited company can be challenging. As a result, our professionals are there to help you with Company Registration in India. You can reach out to us at any time on +91 7305345345.
