The conversion of Private Limited Company into Public Company is a strategic decision that allows a company to expand its market reach, attract more investors and comply with broader statutory requirements. This process involves altering the company’s legal structure under the provisions of the Companies Act, 2013, necessitating a detailed understanding of both procedural and legal implications.
A Private Limited Company is characterized by restrictions on the transferability of shares, a limited number of shareholders (200) and less stringent compliance standards, whereas a Public Company has no such limitations.
This transformation offers access to public funding, stock market listings and increased market presence, but it also mandates adherence to stricter legal regulations. The conversion of Private Limited Company into Public Company is a legally complex procedure, necessitating compliance with multiple legal provisions and must be carefully navigated to avoid any statutory violations.
Legal Framework Governing the Conversion of Private Limited Company into Public Company
The conversion of Private Limited Company into Public Company is primarily governed by the Companies Act, 2013, along with the relevant rules laid down in the Companies (Incorporation) Rules, 2014. Sections 13, 14, and 18 of the Companies Act, 2013, specifically deal with the procedure and requirements for the conversion. The conversion requires the company to alter its Articles of Association (AOA) and Memorandum of Association (MOA) to reflect the new structure and comply with regulations applicable to public companies.
A key legal condition for the conversion of Private Limited Company into Public Company is the approval of shareholders. A special resolution must be passed in the General Meeting with at least a 3/4th majority. The company must also obtain a fresh Certificate of Incorporation from the Registrar of Companies (RoC), reflecting its new status as a public company.
Step-by-Step Procedure for Conversion
#1 Board Meeting (As per Section 173, Companies Act, 2013)
The first step in the conversion of Private Limited Company into Public Company is to convene a Board Meeting.
The Board of Directors must propose the conversion, approve the draft of the altered Memorandum and Articles of Association and authorize the filing of the necessary forms with the Registrar of Companies (RoC).
#2 Shareholders’ Approval (Special Resolution)
Following the Board Meeting, the company must convene an Extra-Ordinary General Meeting (EGM) to seek shareholders’ approval for the conversion. The general meeting must be called after giving at least 21 days advanced notice as per section 101 of companies act, 2013
A special resolution must be passed under Section 14 of the Companies Act, 2013, approving the change in company structure and modification of the AOA and MOA.
#3 Filing of Forms with RoC
After passing the special resolution, the company must file the requisite forms, including Form MGT-14 (for registering the special resolution) and Form INC-27, with the RoC.
The filing of INC-27 must be completed within 15 days of passing of special resolution while the filing of MGT-14 must be completed within 30 days of passing of special resolution
#4 Issuance of Fresh Certificate of Incorporation
Upon satisfying itself with the compliance of all legal formalities, the RoC will issue a fresh Certificate of Incorporation.
The company is then officially recognized as a Public Company, and its name must now include the term “Limited.”
#5 Alteration in Statutory Records
Following the conversion of Private Limited Company into Public Company, the statutory registers, share certificates, and letterheads of the company must be updated to reflect the change.
The company must also ensure compliance with public company-specific provisions, such as increasing the minimum number of directors to three and issuing prospectuses for raising capital.
Key Legal Implications Post-Conversion of Private Limited Company into Public Company
Increase in Compliance Requirements
After the conversion of Private Limited Company into Public Company, the company must adhere to the increased regulatory compliance requirements imposed on public companies. These include filing quarterly financial statements, conducting annual general meetings, and adhering to the rules governing the appointment of independent directors as per Section 149 of the Companies Act, 2013.
Unrestricted Transfer of Shares
One of the key distinctions between a private and public company is the ability to transfer shares. After the conversion of Private Limited Company into Public Company, shareholders are free to transfer their shares without any restrictions, thereby enhancing the company’s ability to raise capital through the issuance of equity shares to the public.
Minimum Number of Shareholders
A public company must have a minimum of seven shareholders, in contrast to the requirement for a private limited company, which can operate with only two. The conversion of Private Limited Company into Public Company necessitates an increase in the shareholder base to comply with this statutory requirement.
Mandatory Listing for Capital Raising
After conversion, the public company has the option to list its shares on recognized stock exchanges. While the listing is not mandatory, it provides the company access to capital from public investors, subject to compliance with SEBI (Securities and Exchange Board of India) regulations.
Conclusion
The conversion of Private Limited Company into Public Company is a significant legal and strategic move that can provide numerous benefits, including increased access to capital markets, enhanced credibility and liquidity for shareholders. However, it also brings challenges such as heightened regulatory compliance, potential dilution of control and public disclosure requirements.
Before proceeding with the conversion, companies must carefully weigh these advantages and disadvantages and ensure that they are fully prepared to comply with the more rigorous legal standards applicable to public companies.
Expert Legal Guidance for Seamless Conversion to Public Company by MAHESHWARI & CO.
At MAHESHWARI & CO., we specialize in guiding companies through the seamless Conversion of Private Limited Company into Public Company. With our extensive legal expertise and in-depth knowledge of the Companies Act, 2013, we ensure full compliance with regulatory requirements while minimizing risks. Whether it’s obtaining shareholder approval, altering statutory documents, or handling filings with the Registrar of Companies, our dedicated team is here to help you every step of the way.
FAQs
1. What is the Conversion of Private Limited Company into Public Company?
The Conversion of Private Limited Company into Public Company refers to the process where a privately held company changes its legal structure to become a public company, enabling it to raise capital from the public and comply with broader statutory regulations.
2. What are the key benefits of Conversion of Private Limited Company into Public Company?
The primary benefits of the Conversion of Private Limited Company into Public Company include access to public funding, the ability to list shares on stock exchanges, enhanced market credibility and increased liquidity for shareholders.
3. What are the legal requirements for Conversion of Private Limited Company into Public Company?
The Conversion of Private Limited Company into Public Company requires altering the company’s Articles and Memorandum of Association, passing a special resolution with shareholder approval and obtaining a fresh Certificate of Incorporation from the Registrar of Companies.
4. How long does it take to complete the Conversion of Private Limited Company into Public Company?
The timeline for the Conversion of Private Limited Company into Public Company can vary but generally takes several weeks, depending on how quickly the necessary forms are filed with the Registrar of Companies and compliance with legal formalities.
5. What are the compliance requirements after the Conversion of Private Limited Company into Public Company?
Post-conversion, a company must comply with stricter regulations such as filing quarterly financial statements, appointing independent directors, and holding annual general meetings, as outlined by the Conversion of Private Limited Company into Public Company process under the Companies Act, 2013.
