Process For Conversion Of A Public Limited Company To A Private Limited Company

 Introduction 

The shares of Public Limited Company are traded publicly in the open Indian market. But in a Private Limited Company the transferability of shares is limited to the shareholders only and the shareholders are not allowed to transfer shares to the public. Than Public Limited Companies, Private Companies are exposed to less regulations under the Companies Act, 2013. The requirement for less compliance leads to a greater number of Public Limited Companies converting into Private Limited Companies. In this article, will go through the process for converting a Public Limited Company to a Private Limited Company.

 Basic requirement for the conversion process 

• It is necessary to change the name clause of the Memorandum of Association from "Public Limited to "Private Limited".
• The Articles of the Company must be properly revised by including the limiting clauses applicable to a Private Company.
• Before converting the shareholders, the authority should review that the company has not skipped any deadlines for submitting financial statements, annual reports or any other documents filled with Registrar.
• The Company is not in default when it comes to paying back the debentures, matured deposits, or interest on debentures or deposits.

 Procedure of conversion of Public Limited Company to Private Limited Company 

1. The conversion and change of the memorandum of association and articles of association with restrictions which applies to a Private Limited Company under Section 2(68) and the appointment of a lawyer are approved by the board resolution.

2. A special resolution should be passed stating the approval of the conversion, the amendment to the articles of incorporation, and the name modification to include the word "Private."

3. Form MGT-14 must be submitted within 30 days of the passing of a special resolution to the Registrar. The following files should be attached to Form MGT-14:

• Amended MOA and AOA
• Copy of special resolution with an explanatory statement.
• Consent of Board members if applicable.

4. The Public Limited Company should do certain things at least 21 days before the filing of an application. They are as follows:

• Publish a notice about the application in Form INC-25A
• Send an acknowledgment notice to every creditor and debenture holder through the registered post
• Send an acknowledgment notice to the Regional Director, Registrar, and Regulatory Body

5. The company should file an application in E-Form No.RD-1 to the Regional Director (RD) within 60 days of passing of Special Resolution along with the prescribed fees under the Companies(Registration Offices and Fees)Rules, 2014. The following documents are to be attached to the form:

• A copy of the articles and memorandum of association.
• A copy of the minutes of the General Meeting
• Copy of the Board Resolution of Power of Attorney authorizing the person to submit an application to the RD not earlier than 30 days.
• Declaration by KMP (Key Managerial Personnel) as per the condition specified under section 2(68) of the Companies Act, 2013.
• Declaration by KMP stating that there has been no non-compliance with the provisions of the Companies Act, 2013.
• Declaration by KMP that no resolution is left to be filed and also mentioning that the Public Limited Company was never listed/registered in any of the Regional Stock Exchanges and if it is listed then all the required procedure was followed as specified by Securities Exchange Board of India.
• Attach the list of Debenture Holders and Creditors.
• An affidavit regarding the correctness of the list of creditors from the Company Secretary, if any, and at least two directors, out of which one must be the managing director(if appointed).

6. Duly verified copy of the list of debenture holders and creditors should be kept with the Registered Office for examination if any.

7. If there are no objections raised to the advertisement or notice or the application is complete, then the RD must issue an approval order without hearing within 30 days of receiving the application.

8. If an application is incomplete or has errors, RD must notify the company within 30 days from the receipt of the application where the company shall correct the mistakes and resubmit within 15 days of E-Form RD-GNL-5. It should be noted that only 2 resubmissions are allowed.

9. If the company fails to resubmit any defects or fails to satisfy the RD, the RD shall reject the application within 30 days from the date of filing the application or within 30 days from the date of the previous re-submission made, whatever the case may be.

10. When an objection is raised for the conversion or RD has made a specific objection, then RD must conduct a hearing within 30 days and order the company to provide an affidavit to record the agreement of the hearing receipt of the NCLT's post-hearing order and registrar's acceptance to the Form MGT-14 for conversion.

11. If no agreement is received within 60 days after the filing of an application, RD must resubmit the application within the allotted time frame of 60 days. If a company is under any inspection, investigation, or legal action, then the conversion between the companies is not permitted.

12. The company should file a certified copy of the order issued by the RD in Form INC-21 within 15 days of receipt of approval.

 Bottom line 

The process of converting a Public Limited Company into a Private Limited Company is long and must follow various requirements stated in the Companies Act, 2013 and Rules. However, the Private Limited Company can enjoy the benefit with regards to minimum compliances after conversion from a Public Company. The workload decreases for each member of the Private Limited Company because the maximum number is increased to 200 members after conversion from a Public Limited Company. One of the main benefits of converting a Public Limited Company to a Private Limited Company is that the Private Company is limited by shares.