Conversion of Private Company into Public: Stepwise Process

Converting a private company into a public one is a significant step in a business’s evolution. This transformation opens up new avenues for growth and investment but also comes with a set of regulations and responsibilities. In this article, we’ll provide a step-by-step guide to help you navigate the process seamlessly.

Stepwise process for conversion of Private Company into Public Company:

The benefit of the following exemptions given to the Private Company will not be available to any public companies after conversion:

• Public Companies shall file form MGT-14 for all the resolutions passed under Sections 117 & 179 (3).
• For acceptance of deposits from members private company not required to comply with the conditions of clause (a)-(e) of Section 73(2). But in the case of a Public Company, it is required to comply with the conditions of clause (a)-(e) of Section 73(2).
• Public Companies can’t accept deposits from the relative of directors unless they comply with the provision of Section 73.
• Provisions of Sections 101 to 107 will be applicable.
• Provisions of Section 109 will also be applicable to Deemed Public Company.
• Provisions of Section 43 (Kinds of Share Capital) & 47 (voting rights- in case of pref. shareholders did not pay a dividend for two years) will also be applicable.
• Exemption under Section 67 relating to Restrictions on Purchase by the Company or Giving of Loans by it for Purchase of its Shares will not be available.
• Provisions of Section 160 (Right of Persons Other than Retiring Directors to Stand for Directorship) will be applicable.
• Internal Financial Controls will become applicable to Public Company.
• Provisions of Directors liable to retire by rotation will be applicable.
• Provisions of Section 180 with respect to Restrictions on Powers of Board to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company and to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital, free reserves and securities premium apart from temporary loans obtained from the company’s bankers in the ordinary course of business
• Exemptions under Section 185 relating to Loans to Directors and any other person in whom the Director is interested, will not be applicable. This exemption is not available to public companies. A Loan can be given to a public company if the Director has a shareholding at 25% whether individually or together.
• Exemption under Section 188 (1) (Related Party Transactions) will not be available.
• In the case of ESOP, All Public companies will required to pass a Special Resolution.
• Exemptions relating to Internal Financial Controls will not be available. Section 143 (3)(i).
• Disclosure of Interest and Participation Section 184: In a private company, an interested director can participate in the meeting after disclosure of interest. However, in a public company, such participation is not permitted.
• Provisions of Section 197 with respect to Managerial Remuneration will become applicable.
• Provisions of the following sections which are exempted to Private Companies will become applicable to Public Companies:
  • Section 101: Notice of Meeting
  • Section 102: Explanatory Statement
  • Section 103: Quorum of the General Meeting
  • Section 104: Chairman of the General Meeting
  • Section 105: Proxies
  • Section 106: Restrictions of Voting Rights
  • Section 107: Voting by show of hands
  • Section 109: Demand of Poll.

Conclusion: Converting a private company into a public one is a complex process involving legal, regulatory, and operational changes. It’s crucial to follow the steps meticulously and be aware of the implications this transformation brings. Seek professional guidance to ensure a smooth transition and maximize the benefits of being a public company.