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Conversion of Public Company to Private Company and Vice-versa

While conversion of a private company into a public company is quite common, conversion of public company into private company is not so common. However, after the enactment of the Companies Act, 2013 which has laid down certain onerous provisions for the public companies in terms of compliance and restrictions, there is an increased trend for public companies to convert themselves into a private company.

Conversion of a private company into public company or a public company into private are dealt with under Section 14 and Section 18 of the Companies act, 2013 and Rule 33 of the Companies (Incorporation) Rules, 2014.

Procedure of Conversion:
Section 14 of the Companies Act, 2014 plays one the most important role in conversion from one form of company into another.
  1. Public Company: In the case of conversion of public company into the private company, it involves alteration of article of association of public company which has to be done with the approval of Tribunal (However, as the relevant provisions have not been notified (as of 29th December 2014), the powers have been delegated to the ROC by the Central Government vide General Circular No. 18/2014 dated June 11, 2014 which can be accessed here).
  2. Private Company: In the case of conversion of a private company into a public company, it involves alteration of its Memorandum of Association and Article of Association in the manner prescribed in chapter II of the Companies Act, 2013.
Secretarial Procedure:
  1. Calling of Board Meeting: Notice has to be issued in accordance with the provision of Section 173(3) of the Act, for convening a meeting of the Board of Directors. The main agenda of the meeting called through should be:
    1. Pass a board resolution to get in­principal approval of Directors for conversion by altering the AOA, which is subject to the approval of Central Government (in cases of conversion of public company into private company).
    2. Fix date, time and place for holding Extra­ordinary General meeting (EGM) to get approval of shareholders, by way of Special Resolution.
    3. To approve notice of EGM along with Agenda and Explanatory Statement to be annexed to the notice of General Meeting as per section 102(1) of the Companies Act, 2013;
    4. To authorize the Director or Company Secretary to issue Notice of the Extra­ordinary General meeting (EGM) as approved by the board under clause 1(c) mentioned above.
  2. Issue of EGM Notice: Issue Notice of the Extra­ordinary General meeting (EGM) to all Members, Directors and the Auditors of the company in accordance with the provisions of Section 101 of the Companies Act, 2013.
  3. Holding of Extra Ordinary General Meeting: Hold the Extra­ordinary General meeting (EGM) on due date and pass the necessary Special Resolution, to get shareholders’ approval for Conversion along with alteration in Articles of Association under section 14 for such conversion.
  4. ROC Form filing: For alteration in Article of Association for conversion under section 14, few E­forms must be filed with concerned Registrar of Companies at different stages as per the details given below:
  5. E­form MGT.14 - For filing special resolution with ROC
Under Section 14 of the Act, the alteration requires a special resolution to be passed for the conversion of the company. Within 30 days of passing of special resolution in the Extra-ordinary general meeting, the company according to the provision of Section 117(3) has to file a copy of special resolution with the concerned ROC.
Attachments of E­form MGT.14:
  1. Notice of EGM along with copy of explanatory statement under section 102;
  2. Certified True copy of Special Resolution;
  3. Altered memorandum of association;
  4. Altered Articles of association
  5. Certified True copy of Board Resolution may be attached as an optional attachment.
b. E­form INC.27 – Application for conversion
An Application for conversion is required to be filed in e­Form INC.27 to the ROC concerned, with all the necessary annexures and with prescribed fee. Attachments of E­form INC.27:
  1. It is mandatory to attach Minutes of the member’s meeting where approval was given for conversion and altered articles of association.
  2. It is mandatory to attach order of competent authority in case of conversion from public company to private company.
  3. Altered Articles of Association;
  4. Other information if any can be provided as an optional attachment(s).
Scrutiny of documents by ROC
As per Section 18, after receiving the documents for conversion, ROC shall satisfy itself that the Company has complied with the requisite provisions for registration of company. If so satisfied, ROC shall close the former registration and issue fresh certificate of incorporation, after registering the documents submitted for change in class of company.

Section 18(3) of the Act clarifies that conversion does not affect any debts, liability, obligations or contracts incurred or entered into, by the company or not on behalf of the company before conversion. Such debts, liability, obligations or contracts shall be enforceable in the same manner as if such conversion has not been done.

Post conversion formalities
Following points have to be kept in mind after conversion:
  1. Intimate all the concerned authorities like Excise and sales tax etc about the status change.
  2. Application must be made for new PAN No. for the company
  3. Update company’s bank account details.
  4. Arrange new stationary with new name of the Company.
  5. That it is fully compliant with the conditions given under section 2(68) (eg., members should not exceed 200 members) regarding definition of a private Company and in the case of conversion into public company the paid up capital of the company has to be raised to minimum of 5 lakh and to the minimum of 3 directors.
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