Companies Act, 2013 Procedure

Conversion of Public Company into Private Company

Napur Rathore
Nupur Rathore

Published on: Jun 5, 2020

Introduction

Subject to the provisions of Companies Act 2013 and the conditions contained in its memorandum, if any, a Company may, by a Special Resolution, alter its articles including alterations having the effect of conversion of a Public Company into a Private Company. [Section 14(1)]

Any alteration having the effect of conversion of a Public Company into a Private Company shall not be valid unless it is approved by an order of the Central Government on an application made in such form and manner as may be prescribed. [Section 14(1)]

Mandatory Requirements for Conversion of Public Company into Private Company

  1. To hold Board meeting for conversion of a Public Company into a Private Company.
  2. Name clause of Memorandum needs to be amended to include the word 'Private'.
  3. Alteration of memorandum and articles of the company as per the Companies Act Provisions. [Section 18(1)]
  4. Make an application to the Registrar for the conversion of a Public Company into a Private Company. [Section 18(2)]
  5. To hold the General Meeting and passing the required resolution for the conversion of a Public Company into a Private Company.
  6. Conversion of the company shall not be allowed to a company which has not filed annual returns or financial statements due for filing with the Registrar or which has failed to pay or repay matured deposits or debentures or interest thereon. [Rule 29(1) of Companies (Incorporation) Rules, 2014]

The Following Procedure is to be followed for Conversion of Public Company into Private Company

  1. Convene a Meeting of Board of Directors [As per Section 173 & Secretarial Standard-1 (SS-1)]
    • Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
    • Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
    • Hold a meeting of Board of Directors of the Company to discuss and approve the agenda of conversion
    • Pass the necessary Board Resolution for the proposal of conversion of Company into a Private Company.
    • To fix the day, date, time and venue of the General Meeting and to approve the draft notice convening the General Meeting along with explanatory statement annexed to the notice as per requirement of the Section 102 of the Companies Act, 2013 and authorize the Director or Company Secretary to sign and issue notice of General Meeting.
    • Authorize Company Secretary or any Director to sign and file the relevant form with Registrar of Companies and to do such acts, deeds and things as may be necessary to give effect to the Board’s decision.
    • Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation, Signing and Compilation of Minutes]
  2. Convene General Meeting [Section 96, 100 and Secretarial Standard-2 (SS-2)]
    • Notice of General Meeting shall be given at least clear 21 days before the actual date of a General Meeting in writing, by hand or by ordinary post or by speed post or by registered post or by courier or by facsimile or by e-mail or by any other electronic means or a Shorter Notice can be issued 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 in accordance with Section 101.
    • Notice will be sent to all the Directors, Members, Auditors of Company, Secretarial Auditor, Debenture Trustees and to others who are entitled to receive the notice of the General Meeting.
    • Notice shall specify the day, date, time and full address of the venue of the Meeting and contain a statement on the business to be transacted at the Meeting.
    • Hold the General Meeting and pass a Special Resolution for the conversion of Public Company into Private Company and altering the Memorandum of Association and Articles of Association including insertion of restrictive provisions as applicable to Private Company.
    • Check the Quorum and check whether auditor is present, if not. Then Leave of absence is Granted or Not.
    • Prepare the minutes of General Meeting, get them signed and compile accordingly. [Refer the procedure for preparation, signing and compilation of minutes of General Meeting].
  3. Filing of Form INC-27 with ROC [Section 14(2) and Rule 33 of Companies (Incorporation) Rules, 2014]
    For effecting conversion of Public Company into Private Company, file an application in E-Form INC-27 with the Registrar along with prescribed fees within fifteen days of passing of Special Resolution along with the following attachments
    • Minutes of the Members' Meeting
    • Certified True Copy of Special Resolution
    • Altered Memorandum of Association
    • Altered Articles of Association
    • Any other documents, as required.
  4. Filing of forms with ROC [Section 117]
    File Form MGT-14 along with the Registrar of Companies within 30 days of passing the Special resolution in the General Meeting, , along with following documents as an attachment
    • Certified True Copies of the Special Resolutions along with explanatory statement
    • Copy of the Notice of meeting sent to members along with all the annexure
    • A printed copy of the Memorandum of Association and Article of Association
    • Copy of Attendance Sheet of General Meeting
    • Shorter Notice Consent, if any.
  5. File an Application for Conversion of Public Company into Private Company [Rule 41(1), 41(2) and 41(3) of the Companies (Incorporation) Rules, 2014]
    An application for the conversion of a public company into a private company, shall be filed with Regional Director in e-Form No. RD-l, within sixty days from the date of passing of special resolution, along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 and shall be accompanied by the following documents
    • a draft copy of Memorandum of Association and Articles of Association, with proposed alterations including the alterations pursuant to Section 2(68)
    • a copy of the minutes of the General Meeting at which the Special Resolution authorizing such alteration was passed together with details of votes cast in favour and or against with names of dissenters
    • a copy of Board resolution or Power of Attorney dated not earlier than thirty days, as the case may be, authorizing to file application for such conversion
    • declaration by a Key Managerial Personnel that pursuant to the provisions of Section 2(68), the Company limits the number of its members to two hundred and also stating that no deposit has been accepted by the Company in violation of the Act and rules made thereunder
    • declaration by a Key Managerial Personnel that there has been no non-compliance of sections 73 to 76A, 177 , 178,185,186 and 188 of the Act and rules made thereunder
    • declaration by a Key Managerial Personnel that no resolution is pending to be filed in terms of section 179(3) and also stating that the Company was never listed in any of the Regional Stock Exchanges and if was so listed, all necessary procedures were complied with in full for complete delisting of the shares in accordance with the applicable rules and regulations laid down by Securities Exchange Board of India. But in case of such Companies where no Key Managerial Personnel is required to be appointed, the aforesaid declarations shall be filed any of the director.
    • a list of creditors, debenture holders, drawn up to the latest practicable date preceding the date of filing of application by not more than thirty days, setting forth the following details
      • the name and Address of every creditor and debenture holder of the company
      • the nature and amounts due to them in respect of debts, claims or liabilities
      • in respect of any contingent or unascertained debt, the value, so far as can be justly estimated of such debt: Provided that the 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 managing director, where there is one, to the effect that they have made a full enquiry into affairs of the company and, having done so, have formed an opinion that the list of creditors and debenture holders is correct, and that the estimated value as given in the list of the debts or claims payable on contingency or not ascertained are proper estimates of the values of such debts and claims that there are no other debts, or claims against, the company to their knowledge
      The application for the conversation shall set out the following particulars, namely
      • the date of the Board meeting at which the proposal for alteration of Memorandum and Articles was approved;
      • the date of the general meeting at which the proposed alteration was approved
      • reason for conversion into a private company, effect of such conversion on shareholders, creditors, debenture holders, deposit holders and other related parties
      • details of any conversion made within last five years and outcome thereof along with copy of order
      • details as to whether the company is registered under section 8.
  6. Publication of an Advertisement [Rule 41(5) of the Companies (Incorporation) Rules, 2014]
    The company shall, at least twenty-one days before the date of filing of the application
    • advertise in the Form INC.25A, in a vernacular newspaper in the principal vernacular language in the district and in English language in an English newspaper, widely circulated in the State in which the Registered Office of the Company is situated
    • serve, by registered post with acknowledgement due, individual notice on each debenture holder and creditor of the company
    • serve, by registered post with acknowledgement due, a notice to the Regional Director and Registrar and to the regulatory body, if the company is regulated under any law for the time being in force.
  7. Submit the further information as required by Regional Director [Rule 41(6) of the Companies (Incorporation) Rules, 2014]
    Where the Regional Director on examining the application finds it necessary to call for further information or finds such application to be defective or incomplete in any respect, he shall within thirty days from the date of receipt of the application, give intimation of such information called for or defects or incompleteness, on the last intimated e-mail address of the person or the company, which has filed such application, directing the person or the company to furnish such information, to rectify defects or incompleteness and to re-submit such application within a period of fifteen days in e-Form No. RD-GNL-5.

    Provided that maximum of two re-submissions shall be allowed.

    In cases where such further information called for has not been provided or the defects or incompleteness has not been rectified to the satisfaction of the Regional Director within fifteen days, the Regional Director shall reject the application with reasons within thirty days from the date of filing application or within thirty days from the date of last re-submission made.

    Where no order for approval or re-submission or rejection has been explicitly made by the Regional Director within the stipulated period of thirty days, it shall be deemed that the application stands approved and an approval order shall be automatically issued to the applicant.
  8. Submit the Copy of Objection with Regional Director [Rule 41(9) of the Companies (Incorporation) Rules, 2014]
    Where an objection has been received or Regional Director on examining the application has specific objection under the provisions of Act, the same shall be recorded in writing and the Regional Director shall hold a hearing or hearings within a period thirty days as required and direct the company to file an affidavit to record the consensus reached at the hearing, upon executing which, the Regional Director shall pass an order either approving or rejecting the application along with reasons within thirty days from the date of hearing, failing which it shall be deemed that application has been approved and approval order shall be automatically issued to the applicant.

    In case where no consensus is received for conversion within sixty days of filing the application while hearing or otherwise, the Regional Director shall reject the application within stipulated period of sixty days: Provided that the conversion 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
  9. Approve the Application of the Conversion [Rule 41(10) of the Companies (Incorporation) Rules, 2014]
    On completion of such inquiry inspection or investigation as a consequence of which no prosecution is envisaged or no prosecution is pending, conversion shall be allowed.
  10. File Form INC-28 with ROC [Rule 41(11) of the Companies (Incorporation) Rules, 2014]
    The Regional Director shall be filed by the company with the Registrar in Form No. INC-28 within fifteen days from the date of receipt of approval along with the fee.
  11. New Certificate of Incorporation
    On the approval of E-Form MGT-14 and E-Form INC-27, Registrar will issue a fresh Certificate of Incorporation with the Changed name. [Section 13(3) & Rule 29(2) of Companies (Incorporation) Rules, 2014]
  12. Steps to be followed after Conversion of Private Company into Public Company are
    • Every Alteration made in the memorandum or articles of the company shall be noted in every copy of the memorandum or articles as the case may be. [Section 15(1)]
    • Every Company shall
      • Printing the new Altered Memorandum and Articles of Association with new Certificate of Incorporation.
      • paint or affix its name, and the address of its registered office, and keep the same painted or affixed, on the outside of every office or place in which its business is carried on, in a conspicuous position, in legible letters, and if the characters employed therefor are not those of the language or of one of the languages in general use in that locality, also in the characters of that language or of one of those languages. [Section 12(3)(a)]
      • have its name engraved in legible characters on its seal, if any. [Section 12(3)(b)]
      • get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications. [Section 12(3)(c)]
      • have its name printed on hundies, promissory notes, bills of exchange and such other documents. [Section 12(3)(d)]
    • Send the new address of registered office with all the Banks, authorities and other Basic Utility Service providers as applicable.
  13. File Necessary Amendment Application under following Acts
    • Goods and Services Act
    • Shops & Establishment Act
    • Factories Act
    • Inter-State Migrant workmen Act
    • Private Security Agency Act
    • EPF
    • ESI
    • Other Labour Laws
    • Industry Specific Laws
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