Gurminder Dhami

Gurminder DhamiIntroduction-  Doing Business in Corporate form gives various advantages such as limited liability, perpetual succession, access to external finance, enhanced Credibility , management expertise and many more.

A Company may be public or private. Although Companies Act, 2013 has not differentiated between both in matter of Compliances to be done but still there are certain benefits to operate via private limited company.

In this Article Provisions for Conversion of Public Company into Private is covered.

ADVANTAGES

There are various provisions under law which are not applicable to a Private Company, these are listed as under:-

  • Number of Director & Members- Minimum no. of Directors is 2 and minimum no. of members is also 2 unlike 3 Directors and 7 members in case of a Public Company.
  • Report on AGM is not required.
  • Quorum for general meetings is 2 only.
  • Appointment of Secretarial Auditor is not mandatory.
  • E-voting and Postal Ballot provisions are not applicable.
  • Concept of rotation of Directors is not applicable to a private Company.
  • Appointment of Independent Director, Women Director is not mandatory.
  • Constitution of Audit Committee & Vigil Mechanism is not mandatory.
  • Annual performance evaluation of Board, Committees and Directors is not Mandatory.
  • Return on change in stake of promoters or top 10 shareholders is not required to be filed.
  • Constitution of Nomination & Remuneration Committee & Stakeholders Relationship Committee is not mandatory.
  • Benefits of exemptions to small Company, if the Paid up Share Capital of the private Company is upto Rs. 50 lakhs and turnover is upto rs. 2 crores.
  • Managerial personnel-Appointment of whole-time KMP is not mandatory, provisions of remuneration to MD/WTD are not applicable in case of a Private Company. Moreover, written Contract of appointment of MD/WTD is not required to be kept at the registered office in case of a Private Company.

Kindly note that, if the Company being converted into Private Company is a subsidiary of a Public Company, the Act shall apply to it as if it is a Public Company and hence the exemptions referred to above will not be available to the resultant Private Company even after Conversion. (Section 2(71))

PROVISIONS

Section-14 (Relevant text reproduced)

“Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may, by a special resolution, alter its articles including alterations having the effect of conversion of—

(a) a private company into a public company; or

(b) a public company into a private company

Provided further that any alteration having the effect of conversion of a public company into a private company shall not take effect except with the approval of the Tribunal which shall make such order as it may deem fit”

Section-13(2) (Relevant text reproduced)

“Any change in the name of a company shall be subject to the provisions of subsections (2) and (3) of section 4 and shall not have effect except with the approval of the Central Government (Power delegated to ROC) in writing.

Provided that no such approval shall be necessary where the only change in the name of the company is the deletion therefrom, or addition thereto, of the word “Private”, consequent on the conversion of any one class of companies to another class in accordance with the provisions of this Act.”

Rule-33 (Relevant text reproduced)

“For effecting the conversion of a private company into a public company or vice versa, the application shall be filed in Form No.INC.27 with fee.

A copy of order of the competent authority approving the alteration, shall be filed with the Registrar in Form No. INC.27 with fee together with the printed copy of the altered articles within fifteen days of the receipt of the order from the Central Government. Explanation:- For the purposes of this sub-rule, the term “competent authority” means, the Central Government”

Simply put for Conversion, Approval of shareholders is required by way of Special Resolution along with NCLT approval and conversion does not attract provisions of change of name.

But 2nd proviso to section 14(1) is not yet in force hence approval of NCLT is not required and corresponding provision under Companies Act, 1956 shall be applicable.

Section-31(1) proviso & (2A) of Companies Act, 1956

(Relevant text reproduced)

“Provided that no alteration made in the articles under this sub-section which has the effect of converting a public company into a private company, shall have effect unless such alteration has been approved by the Central Government

Where any alteration such as is referred to in the proviso to sub-section (1) has been approved by the Central Government, a printed copy of the articles as altered shall be filed by the company with the Registrar within one month of the date of receipt of the order of approval.”

The power of approval vested with the Central Government was delegated to ROC vide notification no. S.O. 1538 (E) dated 10.07.2012 and since provisions of old Act are still applicable in respection of conversion of Public Company into private approval of ROC is required and not NCLT.

Q. What is the role of Central Government as mentioned in rule 33?

Ans: As per Section 14(1) proviso approval of NCLT is required whereas as per rule 33, copy of competent authority(central government) shall be filed with ROC in form INC-27. Accordingly it can be infered that there is no role of Central Government here. Moreover the approving authority is ROC untill provisions of section 14(1) provisio are notified.

processPOST CONVERSION

1. Outside Offices & in Stationery:

  • The Altered name should be painted/affixed outside Registered & every office (Section 12(3)(a)).
  • Change the stationery with new name stationary viz. Letter heads, Bill heads etc (Section 12(3)(C) & (d)).
  • Former name should also be there outside registered and every office and on all Letter heads, bill heads etc. for a period of 2 Years from change of name. (Section 12(3) proviso)

2. Get a new Common seal for the Company (Section 9) and make alteration in every copy of MOA & AOA (Section 15).

3. Intimation to concerned authorities like Income Tax, Excise and sales tax, RBI etc about the change.

4. Caution to be taken:-

  • Restriction on Transfer of shares
  • Prohibition to invite public to subscribe securities v’ Limitation on number of members to 200.
  • Prohibition on acceptance of deposits from other than Director/ Member*.
  • While entrenching articles instead of SR, Unanimous Shareholder’s Resolution is required.

* Acceptance of deposits from members is subject to compliance of section 73.

Disclaimer: The entire contents of this article have been prepared on the basis of relevant provisions and information existing at the time of preparation. Though utmost effort has been made to provide authentic information, it is suggested to kindly cross check the relevant provisions for better understanding. The observations of the author are personal view and the author does not take any responsibility of the same and this cannot be quoted without the written consent of the author. 

(Author may be contacted at csgurminderdhami@gmail.com or on his mobile no. +91-8800568609- Suggestions, comments and queries solicited. )

Author Bio

Qualification: CS
Company: Gurminder Dhami & Associates
Location: Delhi, New Delhi, IN
Member Since: 14 Jul 2017 | Total Posts: 17
Gurminder Singh Dhami is a young, energetic Company Secretary with an eye for detail into the nuances of Corporate Law. A researcher at heart, he has written various articles on new Companies Act, 2013 and leads the Team in keeping abreast with the latest changes and supports in critically analyzing View Full Profile

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