There are complex and tedious compliance requirements for public limited company in India. In contrast, private limited company has fewer compliances compared to public limited company. In addition, there are various exemptions available under the Companies Act 2013 for a private limited company. Recently, in the budget of 2021-22, the limits of the small company has been enhanced and now private companies having capital upto Rs.2 crore and turnover upto Rs.20 crore will be deemed as small company and they can take the benefits of small companies available under the Act.
The main reasons for conversion from public limited company to a private limited company is to get the benefits of small company, to reduce the compliance burden and to avail the relaxation or exemptions provided to private companies by the Government. The approval of public company into private company has been given by the Regional Director, MCA. Earlier, it was dealt by the National Company Law Tribunal (NCLT). So, the process will take lesser time and cost than before.
Legal Provisions of Conversion
The legal provisions related to conversion are given in Section 14 of the Companies Act, 2013 read with Rule 41 of Companies (Incorporation) Rules, 2014. As per Section 14 of the Companies Act, 2013, a public company may convert itself into a private company by taking approval of members by way of passing special resolution in the General Meeting and by taking the approval of Central Government (powers are given to the Regional Director, MCA) on an application made in such form and manner as may be prescribed.
The following is the step wise process for conversion of Public Company into Private Company
1. Convene a Board Meeting
2. Send Notice of General Meeting to the Members at least 21 days before the General Meeting
3. Convene General Meeting for approving conversion of Public Company into Private Company by way of Special Resolution
4. File e-form MGT-14 within thirty (30) days of passing the Special Resolution along with following documents as attachment:
5. Draft an Application for conversion of Public Limited Company into Private Limited Company. There is no standard format of application but the application must contain the following particulars:
6. Preparation of List of Creditors
As per rule 41(3) of the Companies (Incorporation) Rules, 2014, as amended, there shall be attached to the application, a List of Creditors and Debenture Holders, drawn up to the latest practicable date preceding the date of filing of petition by not more than 30 days, setting forth the following details, namely:-
Provided that the company shall file an affidavit, signed by the Company Secretary of the company, if any, and not less than two directors of the company, one of whom shall be managing director, where there is one, to the effect that they have made a full enquiry into affairs of the company and, having done so, have formed an opinion that the list of creditors and debenture holders is correct, and that the estimated value as given in the list of the debts or claims payable on contingency or not ascertained are proper estimates of the values of such debts and claims that there are no other debts, or claims against, the company to their knowledge.
7. Publication and Servicing of Notice
The company shall, at least 21 days before the date of filing of the application:
8. Filling of Application for conversion with Regional Director in e-form RD-1:
As per rule 41(1) of the Companies (Incorporation) Rules, 2014, as amended, an application for conversion of public company into private company shall be filed with Regional Director in e-form RD-1 within 60 days from the date of passing special resolution and shall be accompanied with following documents:
Application for conversion should be filed only after expiry of 21 days from the date of advertisement and filed maximum up to 30 days from the date of list of creditors and 60 days from the date of passing special resolution. So while filing e-form RD-1 one should keep in its mind all of the dates so there won’t be any non-compliance.
Where No Objections has been received and no further information or clarification is required
Where no objection has been received from any person in response to the advertisement or notice sent and the application is complete in all respects, the same may be put up for orders without hearing and the concerned Regional Director shall pass an order approving the application within thirty days from the date of receipt of the application.
Where further information or clarification is required
Where the Regional Director on examining the application finds it necessary to call for further information or finds such application to be defective or incomplete in any respect, he shall within 30 days from the date of receipt of the application, give intimation of such information called for or defects or incompleteness, on the last intimated e-mail address of the person or the company, which has filed such application, directing the person or the company to furnish such information, to rectify defects or incompleteness and to re-submit such application within a period of 15 days in e-Form No. RD GNL-5.
Provided that maximum of two re-submissions shall be allowed.
In cases where such further information called for, has not been provided or the defects or incompleteness has not been rectified to the satisfaction of the Regional Director within the period allowed, the Regional Director shall reject the application with reasons within 30 days from the date of filing application or within 30 days from the date of last re-submission made as the case may be.
Where no order for approval or re-submission or rejection has been explicitly made by the Regional Director within the stipulated period of thirty days, it shall be deemed that the application stands approved and an approval order shall be automatically issued to the applicant.
Where Objection has been received
Where an objection has been received or Regional Director on examining the application has specific objection under the provisions of Act, the same shall be recorded in writing and the Regional Director shall hold a hearing or hearings within a period 30 days and direct the company to file an affidavit to record the consensus reached at the hearing, upon executing which, the Regional Director shall pass an order either approving or rejecting the application along with reasons within 30 days from the date of hearing, failing which it shall be deemed that application has been approved and approval order shall be automatically issued to the applicant.
In case where no consensus is received for conversion within 60 days of filing the application while hearing or otherwise, the Regional Director shall reject the application within stipulated period of 60 days.
9. Approval of Conversion
The Regional Director will make an order approving the conversion on such terms and conditions, if any, as it thinks fit.
10. Filing of Order of RD with the ROC
Obtain certified copy of order approving conversion of public company into private company and file e-form INC-28 with the Registrar of Companies within 15 days from the date of receipt of approval.