How to Convert a Public Company into a Private Company Under Companies Act 2013?

Conversion of a Public Company into a Private Company under the Companies Act, 2013 – Procedure, Documentation and Regulatory Approval

Introduction

Business requirements often evolve with time. A company that was initially incorporated as a public company may subsequently find it beneficial to operate as a private company to enjoy greater managerial flexibility, reduced compliance burden and closer control over ownership and decision-making.

The Companies Act, 2013 permits the conversion of a public company into a private company, subject to approval of the Regional Director and compliance with the prescribed procedure. This article discusses the legal provisions, procedural requirements and practical aspects involved in such conversion.

Legal Framework

The conversion of a Public Company into a Private Company is primarily governed by:

• Section 14 of the Companies Act, 2013;
• Section 2(68) of the Companies Act, 2013;
• Section 13 of the Companies Act, 2013 (where alteration of Memorandum is involved);
• Section 18 of the Companies Act, 2013;
• Rule 41 of the Companies (Incorporation) Rules, 2014.

Meaning of Private Company

As per Section 2(68) of the Companies Act, 2013, a private company means a company having a minimum paid-up share capital as may be prescribed and which by its Articles:

1. Restricts the right to transfer its shares;

2. Limits the number of its members to 200 (excluding present and former employee-members); and

3. Prohibits any invitation to the public to subscribe for any securities of the company.

Accordingly, the Articles of Association of the company must be amended to incorporate the above restrictions before conversion.

Why Companies Opt for Conversion

Some common reasons for conversion include:

• Reduction in compliance requirements;
• Greater flexibility in management and decision-making;
• Restriction on transfer of ownership;
• Protection from hostile acquisition;
• Reduced cost of regulatory compliance;
• Family-owned businesses seeking closer control.

Step-by-Step Procedure for Conversion

Step 1 – Convene Board Meeting

The Board of Directors should convene a meeting to:

• Consider the proposal for conversion;
• Approve alteration of the Articles of Association and, if required, Memorandum of Association;
• Approve draft notice of Extraordinary General Meeting (EGM);
• Authorise a Director or Company Secretary to undertake all necessary filings and compliances.

Step 2 – Hold Extraordinary General Meeting

The company shall convene an Extraordinary General Meeting and pass a Special Resolution under Section 14 approving:

• Conversion of the company from Public Limited to Private Limited; and
• Alteration of Articles of Association and Memorandum of Association, wherever applicable.

Step 3 – Filing of Form MGT-14

The Special Resolution passed at the EGM shall be filed with the Registrar of Companies in Form MGT-14 within 30 days from the date of passing the resolution.

Step 4 – Advertisement and Service of Notices

Not less than 21 days before filing Form RD-1, the company shall:

(A) Publish Advertisement

Publish advertisement in Form INC-25A:

• In one English newspaper; and
• In one vernacular newspaper having wide circulation in the district where the registered office is situated.

(B) Serve Notices

Serve notice by registered post with acknowledgement due to:

• Every creditor;
• Every debenture holder;
• Registrar of Companies;
• Regional Director; and
• Sectoral regulator, if the company is regulated under any special law.

Step 5 – Objections by Stakeholders

Any person whose interest is likely to be affected by the proposed conversion may submit objections to the Regional Director within the prescribed period.

Step 6 – Application to Regional Director in Form RD-1

The company shall file an application with the Regional Director in Form RD-1 within 60 days from the date of passing the Special Resolution.

Key Attachments to RD-1

The application shall be accompanied by:

• Altered e-MOA and e-AOA;
• Certified copy of the Special Resolution;
• Minutes of EGM showing voting details;
• Certified copy of Board Resolution authorising filing of application;
• Declaration regarding compliance with Section 2(68);
• Declaration regarding compliance with Sections 73 to 76A, 177, 178, 185, 186 and 188 of the Act;
• Declaration that no filing under Section 117 remains pending;
• List of creditors and debenture holders not older than 30 days;
• Affidavit verifying correctness of creditors’ list;
• Affidavit by Company Secretary (if any) and two directors confirming that a full enquiry into the affairs of the company has been made and the list of creditors is complete and accurate.

Step 7 – Examination by Regional Director

The Regional Director may:

• Seek additional information;
• Require rectification of defects;
• Permit up to two re-submissions of the application.

If the application is complete and no objection is received, the Regional Director may approve the conversion.

Where objections are received, the Regional Director may conduct hearings and examine whether the proposed conversion adversely affects stakeholders.

Step 8 – Order of Regional Director

The Regional Director may approve the application if satisfied that:

• The conversion is not prejudicial to stakeholders;
• The conversion is not intended to evade compliance under the Companies Act, 2013; and
• All statutory requirements have been fulfilled.

However, conversion shall generally not be permitted where inspection, inquiry, investigation or prosecution is pending under the Act until such proceedings are concluded.

Step 9 – Filing of Form INC-28

The company shall file the order of the Regional Director with the Registrar of Companies in Form INC-28 within 15 days from receipt of the order.

Step 10 – Filing of Form INC-27

After receipt of Regional Director approval, the company shall file Form INC-27 with the Registrar along with:

• Altered Memorandum of Association;
• Altered Articles of Association;
• Copy of Regional Director’s order; and
• SRN of Form RD-1.

The filing must be completed within 15 days from the date of receipt of the Regional Director’s order.

Issue of Fresh Certificate of Incorporation

Upon satisfaction of all requirements, the Registrar of Companies shall:

• Register the alteration;
• Close the former registration of the company; and
• Issue a fresh Certificate of Incorporation reflecting the status of the company as a Private Limited Company.

The conversion becomes effective from the date mentioned in the fresh Certificate of Incorporation.

Practical Points for Professionals

Before filing the conversion application, professionals should ensure that:

• Annual filings are up to date;
• No statutory filing remains pending;
• Register of Members is updated;
• List of creditors is accurate and certified;
• Articles contain all restrictions required under Section 2(68);
• There is no unresolved issue with regulators or creditors.

Author’s Practical Note

While the procedural requirements under Rule 41 appear straightforward, most delays in obtaining Regional Director approval arise due to incomplete creditors’ lists, defective affidavits, pending statutory filings, or inadequate disclosures in Form RD-1. Accordingly, companies should conduct a comprehensive compliance review before initiating the conversion process to ensure timely approval.