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Public to Private limited company conversion
-Conversion of Public Ltd. to Pvt. Ltd. Company
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Public to Private limited company conversion
As we are aware that the private companies have lesser number of compliances as compared to public limited company, therefore primary reason for going with conversion of public company into private company is that it provides lesser compliances, smooth operation of the company with lesser interference from shareholders and various exemptions provided to the private companies provided under companies act 2013. Earlier the conversion approval was granted by the NCLT, but in the year 2018 with the amendment, the power has been shifted to the Regional director (RD).
Public company to private company conversion is a very cumbersome process as it not only involves alterations in MOA and AOA and dealing with all creditors of the company but also liaisoning with various government authorities and involved many appearances in RD. Special resolution of the members and NOC from all the creditors needed to be obtained before filing the conversion application to the RD. The authority has the final discretion whether to grant the approval of conversion or not.
At Unilex Consultants we provide you a hassle free conversion of public company into private company which would be dealt by our experienced professionals within a time frame. Our team takes care of the documentation and aids in provide you the realistic estimation of cost.
Advantages of Public to Pvt. Ltd conversion
Enhanced Control and Management – One of the primary motivations for a company to convert from a public to a private entity is the desire for increased control and management flexibility
Reduction in Regulatory Compliance – Public companies are subject to a myriad of regulatory obligations and compliance requirements
Flexibility in Shareholding – Private companies often have a more concentrated ownership structure, with a smaller number of shareholders
Cost Savings – The process of being a publicly traded company involves substantial expenses, including costs related to regulatory compliance
Documentation for converting Public to Pvt. Company
Last ITR of firm
Last year financials of firm
KYC of proposed Directors
Utility bill of address of company
Process for converting Public Company to Private
- Step-1: Gathering information
- Step-2: Preparing documents
- Step-3: Filing necessary ROC forms
- Step-4: New Incorporation Certificate
Legal Provisions related to the conversion of Public Company into Private Company
- Section 13 of the Companies Act, 2013: The conversion from a Public Company to a Private Company can only be done if the MOA of the Company allows for conversion, so it is necessary to alter the MOA of the Company.
- Section 14 of the Companies Act, 2013: Provides for alteration of AOA for Conversion of Public company to Private company.
- Section 18 of the Companies Act, 2013: Provides for conversion of any registered Company by altering the MOA and AOA of the Company.
Post compliance of conversion
- All the requisite changes shall be made in the signboards, Letter heads, Books Rubber Stamps, Bill Books, Common Seal, visiting cards and other documents and items.
- The word “formerly” shall be used for atleast 2 years on every document of the Company with its present name.
- Changes shall be intimated to Banks, the Income Tax Department, PF Department, ESI Department and all other departments.
- The changes shall be made to the PAN, TAN, and GST portal.
- Intimation shall also be given to other regulatory authorities.
Necessary requirements for Conversion of Public Ltd. into Private Company
- There shouldn’t be more than 200 employees in the company.
- The conversion requires the consent and approval of all of the Company’s creditors.
- If any outstanding charges are not paid in full, the charge holder must give their NOC.
- There shouldn’t be any legal action taken against the Company under the Companies Act, 2013.
- Any required filings with the Registrar shouldn’t have any defaults.
- There shouldn’t be any conflict among the company’s managers.
Under what circumstances RD may reject conversion application.
- RD may reject the application if it is not in the interest of Creditors and/or shareholders.
- If application is made only to contravene or avoid any debt/liability of creditors or other stakeholders.
- If against public interest and morality.
- If frivolous petition made just to evade or contravene any provisions of the law.
The important steps are:
• Hold board meeting to approve proposal and also get approvals for modifications to MOA/AOA.
• Send notice of the general meeting.
• Hold a general meeting and pass a special resolution.
• File Form MGT-14 within 30 days.
• Apply to Regional Director using form RD 1 within 60 days.
• Submit list of creditors / debenture owners.
• RD reviews applications and approves.
• Filing RD order with ROC in Form INC 28 within 30 days.
Yes, it should be in two newspaper atleast 14 days before date of hearing.
Yes, it is the discretion of the RD whether to allow or disallow the conversion.
As it is a very cumbersome process, it usually takes approx. 4-5 months to get the approval from the authority
Well, yes, public companies can easily go private through a straightforward process. If a private investor buys enough company shares, it can go private. But, if the company gets its shares back by buying them, it can go public again.
When going private, the process of valuing the company may differ from valuations conducted in the public market. In the public market, the company's value is determined by market dynamics, such as the stock price and market capitalization. In a private conversion, the valuation process typically involves determining the fair value of the company's shares or the enterprise value based on various factors, such as financial performance, future cash flows, comparable transactions, and industry benchmarks. Professional appraisers or financial advisors may be engaged to assess the company's value during the conversion process
As per section 14 of the Companies Act, 2013 a public company may convert itself into a private company by taking approval of members by way of passing special resolution in the General Meeting and by taking the approval of Central Government on an application made in such form and manner as may be prescribed.
As per Companies Act, 2013, the minimum paid-up capital to form the Private Limited Company was Rs.1 lakh but after the amendments in Companies Act (2013), Companies (Amendments) Act, 2015 states that there is no minimum limit of Paid-up capital to form Private Limited Company but the Authorized capital of minimum Rs.1 lakh is still mandatory to form this Company.
A Private Company can start running its business affairs after receiving COI (Certification of Incorporation) from the Registrar of Companies (ROC).
The tax implications of converting from a public to private company can be significant and may vary based on the specific jurisdiction and tax laws involved. It's crucial to consult with tax professionals to understand the potential tax consequences for both the company and its shareholders. Factors such as the buyout structure, valuation adjustments, and applicable tax regulations need to be considered.
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