Summary: Many public companies are converting to private companies due to regulatory relaxations for private entities. This process, guided by the Companies Act, 2013, involves several steps to comply with regulatory requirements. Initially, the board must pass a resolution approving the conversion and set a date for an Extraordinary General Meeting (EGM) to seek shareholder approval. Notice of the EGM must be issued to all relevant parties, including members, directors, and auditors. A special resolution is required at the EGM to alter the company’s Articles of Association and approve the conversion. The company must then file several forms with the Registrar of Companies and the Regional Director, including Form MGT-14 and Form RD-1. Notices must be served to creditors, debenture holders, and regulatory bodies, with advertisements in local newspapers. Once approvals are obtained, the company must update its documents, including PAN, stationary, and bank details, and inform relevant authorities of the status change. The conversion process aims to simplify operations and reduce regulatory constraints, as reflected in the procedural steps and sample resolutions provided.
Keeping in view the relaxations provided to a Private Company, many public companies have converted into Private Companies or in the process of such conversion. Through this brief write up an attempt has been made to unlock the technicalities related to Conversion of Public Company into Private Company prescribed under Companies Act, 2013. I believe that the procedure for Conversion of Public Company into Private Company along with sample resolutions discussed in this article would be of some help for you all.
Conversion of status of company from public to private would become effective form the date of receipt of the approval of the Registrar of CPC through the change of name would become effective on the issue of fresh Certificate of Incorporation.
The Companies Act, 2013 was expected to simplify the provisions but on the contrary it brought a lot of restrictions on doing business. Therefore, the public companies are converting themselves into private limited company.
REGULATORY REQUIREMENTS:
- Applicable Section(s)
Section 14 of the Companies Act, 2013
- Applicable Rule(s)
Rule 41 of the Companies (Incorporation) Rules, 2014 [as amended by (Amendment) Rules, 2021]
- Important Note:
A company may by a special resolution, alter its articles including alterations having the effect of conversion of a public company into a private company.
Any alteration having the effect of conversion of a public company into a private company shall not be valid unless it is approved by an order of the Central Government. Prior to Companies (Amendment) Act, 2019, power vested with the Tribunal to convert a public company into a private company.
Power of Central Government delegated to Regional Director vide SO 6225(E) dated 18th December 2018 [second proviso to sub-section (1)]
PROCEDURE/STEPS FOR CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY
| S. No. | STEPS | ACTION |
| A. | BOARD MEETING
Notice of Board Meeting Agenda of Meeting
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| B. | Issue Notice in accordance with the provisions of section 173(3) of the Companies Act, 2013 read with SS-1, for convening a meeting of the Board of Directors. | |
| C. | Pass a board resolution to get in principal approval of Directors for conversion of a public company into a private company by altering the AOA subject to the approval of Central Government i.e. Regional Director.
Fix date, time and place for holding Extraordinary General meeting (EGM) to get approval of shareholders, by way of Special Resolution, for conversion of a public company into a private company. To approve notice of EGM along with Agenda and Explanatory Statement to be annexed to the notice of General Meeting as per section 102(1) of the Companies Act, 2013; To authorize the Director or Company Secretary to issue Notice of the Extra-ordinary General meeting (EGM) as approved by the board. |
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| D. | Notice of General Meeting: | Provisions of the Section 101 of the Companies Act 2013 provides for issue of notice of EGM in writing to below mentions at least 21 days before the actual date of the EGM:
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| E. | Convene General Meeting: |
Note: If the company has more the 200 members, the proposal should be approved by the shareholders through the postal ballot only. |
| F. | ROC/ RD form filing | For alteration in Article of Association for conversion of public company in Private Company under section 14, few forms will be filed with ROC CPC.
Companies at different stages as per the details given below |
| G. | Form MGT.14 | As per Section 117(3)
Copy of this special resolution is required to be filed with concerned ROC through filing of form MGT.14 within 30 days of passing special resolution in the EGM |
| ATTACHMETN:
i. Notice of EGM along with copy of explanatory statement under section 102; ii. Certified True copy of Special Resolution; iii. Attendance sheet of EGM iv. Minutes of EGM iii. Altered memorandum of association; iv. Altered Articles of association v. Certified True copy of Board Resolution may be attached as an optional attachment. |
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| It is relevant to note that first you have to file form MGT.14 as SRN No. of form MGT.14 will be used in form INC.27 | ||
| H. | The company shall, at least twenty-one days before the date of filing of the application with the RD: | (a) 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;
(b) serve, by registered post with acknowledgement due, individual notice on each debenture holder and creditor of the company; and (c) 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. |
| I. | Service of Notice to Creditor | Company shall serve notice of general meeting to all the Creditors of the Company. |
| J. | Form GNL-1
(Filing of application with ROC Director) |
The Company is required to file form GNL-1 with ROC any time before filing of application with Regional Director in RD-1 along with complete copy of Application along with annexures (mentioned below). |
| Note: ROC will submit their report with Regional Director. | ||
| K. | Form RD-1
(Filing of application with Regional Director) |
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 Regional Director which shall make such order as it may deem fit.
Accordingly, an application for conversion of a public company into a private company is required to be filed in Form RD-1 to the Regional Director, within 60 days of passing of special resolution with all the necessary annexure and with prescribed fee. |
| ATTACHMENT:
Application for Conversion of Company |
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| L. | Annexure to conversion Application with RD/ ROC |
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| M. | Directions by Regional Director where no objections received:
(a) Where no objection has been received from any person in response to the advertisement or notice 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. |
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| N. | Form INC-27
With CPC ROC |
Company needs to file this form within 15 days of receipt of order of RD. |
Attachment:
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| O. | Form INC-28 | Filing of order of Regional Director: The order conveyed by the Regional Director shall be filed by the company with the Registrar in Form No.INC-28 within fifteen days from the date of receipt of approval along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.
On being satisfied, ROC shall issue a fresh certificate of Incorporation. |
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| POST CONVERSION REQUIREMETNS | |
| i. | Arrange new PAN No. of the company |
| ii. | Arrange new stationary with new name of the Company |
| iii. | Update company bank account details |
| iv. | Intimate all the concerned authorities like Excise and sales tax etc about the status change |
| v. | Printed copy of new MOA & AOA. |
SAMPLE SPECIAL RESOLUTION:
ITEM NO.-1
Conversion of Company into Private Limited Company
To consider and if thought fit, to pass with or without modification(s), the following Resolution as a Special Resolution:-
“RESOLVED THAT pursuant to the provision of section 14 and other applicable provisions, if any, of the Companies Act, 2013 read with rule 41 of the Companies (Incorporation) Rules, 2014 as amended from time to time and subject to approval of Regional Directors, the Registrar of Companies …….. the consent of the Shareholders of the Company be and is hereby accorded to convert the status of the company from public company to a private company.
RESOLVED FURTHER THAT M……… Director of the Company be and is hereby authorised on behalf of the Company, to do all such acts, deeds, matters and things as deemed necessary, proper or desirable and to sign and execute all necessary documents, application and returns for the purpose of giving effect to the aforesaid resolution along with filing of necessary e forms with Registrar of Companies,….. (Jurisdiction)”
ITEM NO.-2
To modify the Memorandum of Association as per Companies Act, 2013
To consider and if thought fit, to pass with or without modification(s), the following Resolution as a Special Resolution:-
“RESOLVED THAT pursuant to the provisions of Section 13(1) and (9) and all other applicable provisions, if applicable, of the Companies Act, 2013 read with the rules framed, the existing clause III(B) and III(C) of Memorandum of Association ne and are hereby deleted and new clause III(B) of Memorandum of Association be and is hereby inserted as per new Companies Act, 2013 as MATTERS WHICH ARE NECESSARY FOR FURTHERANCE OF THE OBJECTS SPECIFIED IN CLAUSE III(A) of the Memorandum of Association of the company. The new clause III(B) will be read as follows:
EXPLANATORY STATEMENT PURSUANT TO SECTION 102 OF THE COMPANIES ACT, 2013
ITEM NO. 1
The Company is being converted into a private company now. The company was incorporated as Private Limited Company but by virtue of Section 43(a) of the Companies Act, 1956 it was converted into a Limited Company. Since Company has very small numbers of shareholders and company is in no need of more funding from capital and in the interest of shareholders and stakeholders, it would be better to convert company into a Private Company and company can work effectively as a Private Limited Company so it is being proposed to convert into a Private Limited Company since it has not much shareholders and its funds requirements are low.
Moreover, conversion into a Private Company shall not affect any debts, liabilities, obligations or contracts incurred or entered into, by or on behalf of the company before conversion and such debts, liabilities, obligations and contracts may be enforced in the manner as if such conversion had not been done.
The company is being converted into a Private Limited Company now and a new set of Articles of Association as applicable to a Private Company is being adopted.
The Directors recommend the Resolution for Member’s approval as a Special Resolution
None of the directors or KMP and their relatives is concerned or interested financially or otherwise in passing of this resolution.
ITEM NO. 2
The ancillary objects in the Clause III(B) of the Memorandum of Association are being changed with the requirements of Companies Act, 2013 and new set of MATTERS WHICH ARE NECESSARY FOR FURTHERANCE OF THE OBJECTS SPECIFIED IN CLAUSE III(A) are being adopted.
The Directors recommend the Resolution for Member’s approval as a Special Resolution
None of the Directors or key managerial personnel or any relative of any of the Directors of the Company or the relatives of any key managerial personnel is, in anyway, concerned or interested in the above resolution.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).
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