CS Divesh Goyal

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 through 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 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 lot of restrictions on doing business. Therefore the public companies are converting themselves into private limited company.

As per Section 14(1)- for conversion of Public Company into Private Limited Company approval of Tribunal is required.

By Companies (Amendment) Ordinance, 2018, Power of Tribunal has been transferred to Central Government. Therefore, after notification of ordinance Public Company can be converting into Private Company with approval of Central Government.

MCA on 18th December, 2018 has published Companies (Incorporation) Fourth Amendment Rules, 2018. They shall come into effect from 18th December, 2018.

By these rules MCA amended Rule 41 “applicability under section 14 for conversion of Public Company into Private Company”

Power of Central Government assigned to Regional Director for approval of conversion of public limited company into private limited company.

In this editorial the author shall discuss the process of Conversion of Public Company in Private Limited Company  along with comparison with earlier provisions.

Short Summary:

Keeping in view the relaxations provided to a Private Company (Exemption given by 2 circulars vide notification dated 05th June, 2015 and  13th June, 2017), 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.

We believe that the procedure for Conversion of Public Company into Private Company along with sample resolutions discussed through this article would be of some help for everyone.

Conversion of status of company from public to private would become effective form the date of receipt of the approval of the Registrar 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 lot of restrictions on doing business. Therefore the public companies are converting themselves into private limited company.

REGULATORY REQUIREMENTS:

The procedure for conversion from one company to the other is expounded within the Act with certain statutory requirements such as alteration of the Memorandum of Association (MOA) and Articles of Association (AOA) of the company.

Legal Provisions related to Conversion of Public Company into Private Company are given in Section 18 and 14 of the Companies Act, 2013 read with Rule 41 of Companies (Incorporation) Rules, 2014.

As per Section 13 and Section 14 of the Companies Act 2013 read with Rule 41 of Companies (Incorporation) Rules, 2014. A public company can be converted into the private company only after obtaining its shareholders approval by way of passing of special resolution in general meeting.

Relevant Sections & Rules of the Act:

1. Section 13: It provides for alteration of memorandum.

2. Section 14: It provides for alteration of articles.

3. Section 18: It allows an existing Company to convert itself as a company of other class under this Act by alteration of memorandum and articles of the company in accordance with the provision of chapter II of the Act.

4. Rule 40 of Companies (Incorporation) Fourth Amendment Rules, 2018: Application under Section 14 for conversion of public company into private company.

DETAILED PROCEDURE FOR CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY:

First Step:

STEP – I: Convey Board Meeting of Directors: (As per section 173 and SS-1)

To 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 (Power of Central Government assigned to RD).

STEP –II: Held Board Meeting: (As per section 173 and SS-1)

  • To consider In-principal approval for conversion of Public Company into Private Company by altering Articles.
  • Get Approval to Alteration in Article of Association and recommending the proposal for members’ consideration by way of special resolution.
  • Fixing the date, time, and venue of the general meeting and authorizing a director or any other person to send the notice for the same to the members.
  • To approve Notice of EGM along with explanatory statement to be annexed with the notice as per Section 102(1) of the Act.

STEP- III: Issue Notice of General Meeting: (Section 101)

Notice of EGM shall be given at least 21 days before the actual date of EGM. EGM can be called on Shorter Notice with the consent of at least majority in number and ninety five percent of such part of the paid up share capital of the company giving a right to vote at such a meeting:

  • All the Directors.
  • Members
  • Auditors of Company

The notice shall specify the place, date, day and time of the meeting and contain a statement on the business to be transacted at the EGM

Second Step:

STEP- IV: Hold General Meeting: (Section 101)

  • Check the Quorum.
  • Check whether auditor is present, if not. Then Leave of absence is Granted or Not. (As per Section- 146).
  • Pass Special Resolution.[Section-114(2)]
  • Approval of Alteration in AOA for conversion of Public Company into Private Limited Company
  • Approval of alteration in Memorandum of Association.

STEP- V: Filing of form with ROC: (Section 117)

File Form MGT-14 (Filing of Resolutions and agreements to the Registrar under section 117) with the Registrar along with the requisite filing within 30 days of passing the special resolution, along with given documents:-

  • Certified True Copies of the Special Resolutions along with explanatory statement;
  • Copy of the Notice of meeting send to members along with all the annexure;
  • A printed copy of the Altered Article of Associations and Memorandum of Association.

Note: It is relevant to note that First you have to file form MGT.14

Third Step:

STEP- VI: Drafting an Filing of Application with Regional Director (in Form RD-1)-

Application in Regional Director shall be file at within 60 days from passing of Special Resolution in e-form RD-1.

Application shall be accompanied by following Documents:

Following documents are required to be attached with petition for conversion of Public Company into a Private Company under Section 14(1) of the Act:

  • Copy of the memorandum and articles of association with proposed alterations
  • Copy of Minutes of General Meeting (mentioning details of votes cast in favour or against)
  • Copy of Attendance Sheet of General Meeting
  • Board Resolution for authorizing to file application for conversion (dated not earlier than 30 days)

Other Documents to be attached:

Declaration in form of Affidavit:

Declaration by Key Managerial Personal (If company not having KMP then by any Director) i.e.:

I. The Company limits the number of its members to 200, and that no deposit has been accepted by the Company in violation of the Act and rules.

II. There is no non-compliance of Section 73 to 76A, 177, 178, 185,186 and 188 of Act an rules made thereunder

III. That, No resolution is pending to be filed in terms of Section 179(3) and

IV. that the company never listed on stock exchange and if listed complied with the relevant provisions.

Details of Creditors:

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 or any such claim admissible to proof in winding up of the company, the value, so far as can be justly estimated of such debt or claim:

Affidavit Verifying List of Creditors:

The applicant 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 a managing director, where there is one, to the effect that they have made a full enquiry into the affairs of the company and, having done so, have formed an opinion that the list of creditors is correct, and that the estimated value as given in the list of the debts or claims payable on a contingency or not ascertained are proper estimates of the values of such debts and claims and that there are no other debts of , or claims against, the company to their knowledge.

Publication of News Paper Advertisement:

The company shall at least Twenty One days before the date of filing of application:

  • News Paper Advertisement: Advertise the petition in Form No. INC 25A, at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situate, and at least once in English language in an English newspaper circulating in that district. (Widely Circulated in the State in which the registered office of company is situated)
  • Speed Post to Creditors: serve, by registered post with acknowledgement due, individual notice to each debenture-holder and creditor of the company; and
  • Service of Petition to ROC/RD: serve, by registered post with acknowledgement due, a notice together with the copy of the application to the Central Government (Regional Director), Registrar of Companies and to the Securities and Exchange Board of India, in the case of listed companies and to the regulatory body, if the company is regulated under any other Act.

Fourth Step:

File Form RD-1 with the Regional Director within 60 days of passing of Special Resolution with all the above mentioned annexures Like:

  • MOA & AOA
  • General Meeting Minutes and Attendance Sheet
  • Board Resolution authorizing application
  • Declarations
  • List of Creditors
  • Affidavit verifying the list of creditors
  • Copy of News Paper Advertisement

Other Provisions:

A. Power to Inspect:

A duly authenticated copy of the list of the creditors shall be kept at the registered office of the company and any person desirous of inspecting the same may at any time during the ordinary hours of business, inspect and take extracts of the same on the payment of a sum not exceeding ten rupees per page to the company.

B. Objection if Any Received:

Where any objection of any person whose interest is likely to be affected by the proposed application has been received by the applicant, it shall serve a copy thereof to the Central Government on or before the date of hearing.

C. Where No Objection Is Received:

Where no objection received from any person in response to the advertisement or notice under sub-rule (5) or otherwise, the application may be put up for orders without hearing and the order either approving or rejecting the application shall be passed within 30 days of receipt of the application.

D. Where Objection Is Received:

After checking of application with Annexures the hearing will take place at the Regional Director office and it should be represented by the company or practicing professional or advocate.

E. The Regional Director will make an order confirming the alteration on such terms and conditions, if any, as it thinks fit, and may make such order as to costs as it thinks proper:

F. Obtain certified copies of the order confirming the shifting of registered office from one state to another, passed by the Central Government,

18) File e-form INC-28 with ROC within 30 days of confirmation of shifting by Regional Director along with copy of order.

STEPS AFTER OBTAINING NEW CERTIFICATE FROM ROC:

  • Make alteration in the MOA with respect to the state in every copy of Memorandum.
  • Each stationery, banner, signboard, bills, invoice etc. should show the new address and necessary advice should be sent to shareholders, debenture holders, and other concerned parties.
  • Necessary changes are required to be made in the letter heads, books, records etc. of the company. The necessary changes are required to be made in PAN. TAN and ST2 etc and inform to all the Government departments, banks, customers and others wherever required.

Tail Piece: Provided that the shifting of registered office shall not be allowed if any inquiry, inspection or investigation has been initiated against the company or any prosecution is pending against the company under the Act.

POST CONVERSION REQUIREMENTS
A. Arrange new PAN No. of the company
B. Arrange new stationary with new name of the Company
C. Update company bank account details
D. Intimate all the concerned authorities like Excise and sales tax etc about the status change
E. Printed copy of new MOA & AOA.

Notes:-

[1] All the matters filed with NCLT before date of commencement of the Ordinance, 2018 shall be disposed off by the Tribunal in according with earlier provisions.

 SAMPLE SPECIAL RESOLUTION:

Sample Special Resolution for conversion of a Public Company into a Private Company

SPECIAL BUSINESS

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 provisions of Section 18 read with the provisions of Section 13 and 14 of the Companies Act, 2013 and subject to the approval of the Central Government and members by way of special resolution at the general meeting of the company be converted into the private limited company and the name of the company be changed from _______________________________ LIMITED to _______________________________ PRIVATE LIMITED by addition of the word “PRIVATE” before the word “LIMITED.

FURTHER RESOLVED THAT a new set of Articles of Association as applicable to Private Company as placed before this meeting be approved and adopted as new set of Articles of Association of the company

FURTHER RESOLVED THAT Mr. __________________ (DIN: ______________), director of the company, be and is hereby authorized to make an application to the Registrar of Companies, NCT of Delhi and Haryana, in prescribed form and file the requisite e-forms and to do all such acts, deeds and things as may be required to give effect to the above said resolution.

FURTHER RESOLVED THAT ___________________, ACS-_______________ CP-___________, be and is hereby authorized to certify all the e-forms filed in the course of giving effect to the above said resolution.

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.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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11 Comments

  1. CS Ramanuj Asawa says:

    Rule (41) (5) (c) requires service, by registered post with acknowledgement due, a notice to the Regional Director and Registrar.
    You have mentioned service of petition.
    Can you explain under which rule of law the word “notice” is replaced by the word “petition”?

  2. kotecha sheila says:

    We have received the approval from ROC for conversion of Ltd company to Pvt Ltd company. In how many days should we start accounting in the Pvt Ltd company and what is the procedure.

  3. Viral Ranpura says:

    Rule 33(1) reads as: 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.
    Rule 33(2)
    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.
    When to file INC 27? Both the times or only after getting RD Approval?

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