Conversion of Public Company into Private Limited Company

Article updated as on 20th December, 2018

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

By ordinance, 2018: Power of Tribunal has been transferred to Central Government. Therefore, after notification of ordinance Public Company can be converted 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 05^th June, 2015 and 13^th 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 section117) 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.:

1. 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.
2. There is no non-compliance of Section 73 to 76A, 177, 178, 185,186 and 188 of Act an rules made thereunder
3. That, No resolution is pending to be filed in terms of Section 179(3) and
4. 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,

G. 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

FLOW CHART- CONVERSION OF COMPANY

Author CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted [email protected]).

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION