Conversion of Public Company in to Private Company- Procedure

The Companies Act, 2013 (Act) allows Companies to convert itself into any other Companies at any time subject to the fulfilment of conditions prescribed in the Act and rules thereunder. Ministry of Corporate Affairs (MCA) by its notification dated 18th December 2018 has introduced new Rule 41 in the Companies (Incorporation) Rules, 2014 specifying the process of fling an application under Section 14 of the Act for conversion of public company into private company.

As per Rule 41, the application for conversion is to be made to Regional Director having jurisdiction over companies. Earlier the application for conversion was made with National Company Law Tribunal and the process was gradual. Therefore to reduce the burden of NCLT and in order to expedite the process of conversion of Public Company in to Private Company, MCA took this move. Now, the application is to be made to Regional Director within sixty days from the date of passing of special resolution in e-form RD-1.

Sources:

1. The Companies Amendment (Ordinance), 2018: Amendment in Section 14 by inserting second proviso of sub-section (1).

2. The Companies (Incorporation) Fourth Amendment Rules, 2018: Inserting new Rule 41- Application under section 14 for conversion of public company into private company.

Conversion of private limited to public limited

Pre-requisites to be done before filing application for Conversion of Public Company in to Private Company :

1. Reduce the number of Shareholders / members up to 200: Before filing any application of conversion to the authorities, the Company is required to reduce its number of shareholders/ members up to the permissible limit for Private Limited Company.

2. Comply with the provision of Deposits applicable to Private Limited Company: The Company, if accepted deposits from public, is required to repay/ refund the same to whom it accepted before filing an application.

3. Delist the Company, if Listed: If the Company is listed on any of the recognised stock exchange then it should take the necessary steps to delist the shares in accordance with the applicable rules and regulations laid down by Securities Exchange Board of India before filing such conversion application.

4. No inquiry, inspection or investigation or prosecution is pending: If inquiry, inspection or investigation has been initiated against the Company or any prosecution is pending against the company under the Act, then conversion shall not be allowed to such Company.

Step-wise procedure for conversion of Public Company in to Private Company

1. Convene a Board Meeting and pass resolution for following agenda items with requisite majority:

Conversion of Company from “Public Limited “ to “Private Limited”;
To Alter the Articles of Association of the Company by way of inclusion of restrictions and limitations which are required to be included in the articles of a private company;
To Alter the Memorandum of Association of the Company for its name Change;
To call an Extra- Ordinary General Meeting and approve Notice and Explanatory Statement;
To authorize professional for filing application and appearing before the authorities;

2. Dispatch the Notice of EGM to all Shareholders of the Company in accordance with the provisions of Section 101 of the Act read with Secretarial Standard – 2.

3. Convene an EGM and pass following resolutions as Special Resolution:

Conversion of Company from “Public Limited “ to “Private Limited”;
To Alter the Articles of Association of the Company by way of inclusion of restrictions and limitations which are required to be included in the articles of a private company;
To Alter the Memorandum of Association of the Company for its name Change;

4. File an E-Form MGT-14 with in thirty days of passing Special Resolution stated in above clause.

5. Give an advertisement in Form No. INC 25A, at least 21 days before filing application, in 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;

6. Prepare and finalize the application for conversion comprising under mentioned mandatory particulars:

the details of the Board meeting at which the proposal for alteration of Memorandum and Articles was approved;
the details 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;
Details of Creditors, debenture holders up to the latest practicable date preceding the date of filing of application not later than 30 days.

[For example if we are filing application on June 15, then the date of List of Creditors & debenture holders shall not be the date before May 17.]

7. The List of Creditors and debenture holders shall be 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;

8. Take necessary steps for filing of E-Form RD-1. The following documents will be accompanied with E-Form RD-1:

a copy of Memorandum of Association and Articles of Association, with proposed alterations;
a copy of the minutes of the general meeting at which the special resolution authorising such alteration was passed along with the details of votes cast in favour and or against with names of dissenters along with attendance sheet;

[Author’s Comment: It is no where mentioned in the Act or rules that we need to attach attendance sheet with minutes but it is demanded by the Office of Regional Directors. That’s why it is suggestible to attach the same with Minutes.]

a copy of Power of Attorney in the form of Board Resolution authorising someone to file an application of conversion on behalf of the Company.

It may be noted that the Power of Attorney shall not be older than thirty days from the date of filing application for conversion. [For example if we are filing application on June 15, then the date of Power of Attorney shall not be the date before May 17.]

Declaration(s) by Key Managerial Personnel (KMP) & if there is no KMP on Board, then by Directors for following:-
That the company limits the number of its members to two hundred pursuant to the provisions of sub-section (68) of Section 2;
That no deposit has been accepted by the Company in violation of the Act and rules made thereunder;
That there has been no non-compliance of Sections 73 to 76A, 177 , 178, 185, 186 and 188 of the Act and rules made thereunder;
That no resolution is pending to be filed in terms Section 179(3) of the Act;
That the Company never apply for conversion within last 5 years and company is not registered as Section 8 Company;
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;
Affidavit(s) by Key Managerial Personnel (KMP) & if there is no KMP on Board, then by two Directors for verifying:-
The List of Creditors signed by the Company Secretary of the company, if any ant two directors 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;
The application for conversion;
That the no prosecution/inquiry/ inspection/ investigation is pending.
That the no objection received against the newspaper advertisement in the matter of conversion of the Company;
Statement of the grounds on which the application is made (i.e. Reasons of Conversion);
Newspaper Advertisement made in two newspaper for conversion;
No Objection Certificate from Creditors and Debenture holders, if any;
Certificate from Chartered Accountant certifying the List of Creditors;

[Author’s Comment: It is no where mentioned in the Act or rules that we need to attach Certificate from CA for certifying the List of Creditors whereas it is demanded by office of Regional Director, hence suggestible to attach.]

Certified true copy of E-form MGT-14 filed with Registrar of Companies (ROC) registering special resolutions;
Acknowledgement Receipt for sending individual notices to Creditors, if applicable,
Acknowledgement Receipt for submitting application in physical to Registrar of Companies (ROC);
Any other attachment as may be deemed necessary by the Company.

9. If the No Objection received from any person in response to the advertisement or notice referred in clause 5 above 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 30 days from the date of receipt of the application.

10. If 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 fifteen days in e-Form No. RD-GNL-5;

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.

11. If no order for approval or re-submission or rejection has been explicitly made by the Regional Director within the stipulated period of 30 days, it shall be deemed that the application stands approved and an approval order shall be automatically issued to the applicant.

12. If an objection has been received by Regional Director or any other person 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 thirty days as required 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.

13. 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;

14. The order conveyed by the Regional Director shall be filed by the company with the Registrar in Form No.lNC-28 within 15 days from the date of receipt of approval along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.]

Compliances to be made after conversion of Public Company in to Private Company :

1. Print the revised copies of MOA & AOA with fresh name and Fresh Certificate of Incorporation;

2. Make all requisite changes in the signboards, Letter heads, Books Rubber Stamps, Bill Books, Common Seal, visiting cards and other documents and items;

3. Make the necessary changes in PAN, TAN, GST Portal, Bank Accounts etc;

4. Intimate about change to Banks, Income Tax Department, PF Department, ESI Department and all other departments.

5. Use the former name of the Company with present name upto two years on every document of the Company.

Message form Author:

The applicability for the conversion of Public Limited Company into Private Limited Company has prescribed under Section 14 read with rule 41 of Companies (Incorporation) Rules, 2014. In today’s scenario the Compliances on Public Companies are increasing day by day which puts lots of obstacles on doing business. On the other hand, various exemptions from the compliances of various provisions of the Companies Act, 2013 are given to Private Limited Company by Government. Keeping in view the relaxation given to Private Companies, a lot of public companies have converted into private companies and many are under process. We did our best to serve you a better service in order to meet your requirements, however, in case of any other query / explanation please feel free to write us.

Tags: Companies Act, Companies Act 2013

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Author Bio

Name: Riya Luthra

Qualification: CS

Company: MARG & Associates

Location: New Delhi, IN

Member Since: 12 Jun 2020 | Total Posts: 3

I am young Company Secretary having 2.5 years post qualification experience having exposure in assignments related to Trademarks, FSSAI, MSME, Shop & Establishment Act, GST, Trust & Societies and Many More. View Full Profile

Conversion of Public Company in to Private Company- Procedure

Pre-requisites to be done before filing application for Conversion of Public Company in to Private Company :

Step-wise procedure for conversion of Public Company in to Private Company

Compliances to be made after conversion of Public Company in to Private Company :

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