Conversion of a Public Limited Company into a Private Limited Company
In India, there are different legal compliance issues to be strictly adhered to during the transformation of a Public Limited Company into a Private Limited Company. Such transformation would enable the advantage of lowered compliance requirements, increased managerial control, and greater flexibility in operation. The process is formal and, to comply with the requirements, certain legal formalities have to be adhered to.
Understanding the Distinction
- Public Limited Company (PLC): In a Public Limited Company, shares can be offered to the general public. It must strictly abide by regulatory norms and disclosure requirements.
- Private Limited Company (Pvt Ltd):Â A Private Limited Company prohibits the transfer of shares, and the upper limit to the number of members shall be 200 members. It cannot invite subscriptions to its shares or securities on a public basis.
Legal Framework Governing Conversion
The different provisions of the Companies Act, 2013, and the rules regarding conversion from a Public Limited Company to a Private Limited Company are applicable.
- Section 13: Applying to provisions of alteration of the company’s Memorandum of Association (MoA), such as the name and objectives of the company.
- Section 14: The alteration of Articles of Association (AoA) bears upon the change of the identity of the company.
- Section 18: This gives the framework of the conversion of companies under the Act by means of alteration of their MoA and AoA.
- Rule 41 of the Companies (Incorporation) Rules, 2014: It describes the procedural steps to be followed while carrying out the conversion.
It is noteworthy that the Central Government has delegated the power to these Regional Directors to approve such conversions.
Eligibility Criteria for Conversion
Before commencing the conversion procedure, the Company shall make sure of the following :
- Member Limit: The number of Members shall not exceed 200.
- Creditor Consent: No Objection Certificate (NOC) from All Creditors.
- Compliance Status: The company must not have any pending prosecutions or defaults in the filings with the Registrar of Companies (RoC).
- Charge Satisfaction: All Charges should be satisfied, or necessary consents obtained from charge holders.​
Step-by-Step Procedure for Conversion
- Board Meeting:
- Notice the meeting at least seven days in advance.
- Pass a resolution proposing the conversion and approve the associated MoA and AoA alterations.
- Convene a General Meeting to obtain the approval of shareholders.​
- General Meeting:
- Send a notice at least 21 days before the meeting.
- Pass a Special Resolution about the conversion and its associated alterations to the MoA and AoA.
- Filing with RoC:
- Filing Form MGT-14 within 30 days from the date of passing the special resolution, along with the altered MoA and AoA. ​
- Public Advertisement:
- Publish advertisement in Form INC-25A in both English and vernacular newspapers widely circulated in the district where the registered office of the company is situated.
- Individual notices to debenture holders, creditors, and regulatory authorities like RoC, RD, GST, and IT departments. ​
- Application to Regional Director:
- Draft an application specifying the grounds for conversion and the impact on the stakeholders.
- Form RD-1, along with the altered MoA and AoA, along with General Meeting minutes and advertisement, publicized, has to be submitted to the Regional Director.
- Approval and Certification:
- The Regional Director, satisfied with the same, will pass an order converting the same.
- This order shall be filed with RoC in Form INC-28 within thirty days to obtain a new Certificate of Incorporation reflecting the changed status of the company as a Private Limited Company.
Post-Conversion Compliance
- Name Change: Change the name of the company to incorporate the suffix “Private Limited” and change all formal documents accordingly.
- Statutory Registers: Amend the statutory registers and announce the alteration of the company status to any stakeholders.
- Compliance Requirements: Policy compliance with compliance requirements as Private Limited Companies, which, typically, have less strict compared to Public Limited Companies.
Advantages of Conversion
- Reduced Compliance Burden: Private companies incur fewer regulatory requirements and, therefore, save costs.​
- Enhanced Control: A small shareholder group facilitates decision-making.​
- Operational Flexibility: Private companies can make recent strategic decisions without deterring public shareholders.​​
- Privacy: Fewer disclosures about financial and operating details than public ones.
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The conversion from a Public Limited Company to a Private Limited Company in India is a wise decision offering various advantages such as operational flexibility and lesser compliance requirements. Nevertheless, it needs tons of planning and adherence to the legal procedures prescribed under the Companies Act, 2013. Therefore, the engagement of lawyers and consultants will ensure a seamless transition so that all compliances are made and objectives achieved.
