Conversion of Public Company into Private Company- Legal Provisions

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.

Process for Conversion of Public Limited Company into Private Limited Company

The following is the step wise process for conversion of Public Company into Private Company

1. Convene a Board Meeting

• To consider the proposal of conversion of public company into private company;
• To approve amendment of articles of association of the company subject to approval of members by way of special resolution in general meeting;
• To authorize director or any other officer on behalf of the company to do all acts as deem necessary for the purpose of giving effect to the proposal of conversion of public company into private company;
• To authorize any practicing professional to enter appearance before Regional Director for the aforesaid conversion;
• To fix the date, time and venue of the general meeting and to authorise a director or company secretary to send the notice of the general meeting to the members.

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:

• Certified true Copy (CTC) of Special Resolution passed in General Meeting;
• CTC of altered Memorandum of Association (MOA)
• CTC of altered Articles of Association (AOA)

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:

• the date of the Board meeting at which the proposal for alteration of Memorandum and Articles was approved;

• the date of the general meeting at which the proposed alteration was approved;

• reason for conversion into a private company, effect of such conversion on shareholders, creditors, debenture holders, deposit holders and other related parties;

• details of any conversion made within last five years and outcome thereof along with copy of order;

• details as to whether the company is registered under section 8.

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:-

• the names and address of every creditor and debenture holder of the company;

• the nature and respective amounts due to them in respect of debts, claims or liabilities;

• in respect of any contingent or unascertained debt, the value, so far as can be justly estimated of such debt:

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:

• advertise in the Form No. INC 25A, in a vernacular newspaper in the principal vernacular language in the district and in English language in an English newspaper, widely circulated in the State in which the registered office of the company is situated;

• serve, by registered post with acknowledgement due, individual notice on each debenture holder and creditor of the company; and

• serve, by registered post with acknowledgement due, a notice to the Regional Director and Registrar and to the regulatory body, if the company is regulated under any law for the time being in force.

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:

• a draft copy of Memorandum of Association and Articles of Association, with proposed alterations including the alterations pursuant to sub-section (68) of section 2;

• a copy of the minutes of the general meeting at which the special resolution authorising such alteration was passed together with details of votes cast in favour and or against with names of dissenters;

• a copy of Board resolution or Power of Attorney dated not earlier than thirty days, as the case may be, authorising to file application for such conversion;

• declaration by a key managerial personnel that pursuant to the provisions of sub-section (68) of section 2, the company limits the number of its members to two hundred and also stating that no deposit has been accepted by the. company in violation of the Act and rules made thereunder;

• declaration by a key managerial personnel that there has been no non-compliance of sections 73 to 7 6A, 177, 178,185, 186 and 188 of the Act and rules made thereunder;

• declaration by a key managerial personnel that no resolution is pending to be filed in terms of sub-section (3) of section 779 and also stating that the company was never listed in any of the Regional Stock Exchanges and if was so listed, all necessary procedures were complied with in full for complete delisting of the shares in accordance with the applicable rules and regulations laid down by Securities Exchange Board of India: Provided that in case of such companies where no key managerial personnel is required to be appointed, the aforesaid declarations shall be filed any of the director.

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.

Deemed Approval

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.