Conversion of Public Limited Co. into Private Limited Co. - Series 394



Conversion of
Public Limited Co. into
Private Limited Co.

Short Summary:
Keeping in view the relaxations provided to a Private Company (Exemption given by 2 circulars vide notification dated 05th June, 2015 and [1]13th 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 13 and 14 of the Companies Act, 2013 read with Rule 33 of Companies (Incorporation) Rules, 2014.

As per Section 13 and Section 14 of the Companies Act 2013 read with Rule 33 of Companies (Incorporation) Rules, 2014. A public company can be converted into the private company only after obtaining its Tribunal and approval of shareholders 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 33 of Companies (Incorporation) Rules, 2014: INC-27 for Conversion of Public Company into Private Company. 

Process for Conversion

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 ROC).


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 atleast 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 as SRN No. of form MGT.14 will be used in form INC.27


Third Step:
STEP- VI: Drafting an Filing of Petition with NCLT -  
(not less than three months from date of passing SR)
Petition in NCLT shall be file at least after 3 month from passing of Special Resolution.

Rule 68 of the NCLT Rules, 2016: Petition shall be filed to the Tribunal in Form No. NCLT. 1 and shall be accompanied by such documents as are mentioned in Annexure B.

Annexure B: 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.
§  Copy of the documents showing that the company ceased to become a public company.
§  Affidavit verifying the petition.
§  Bank draft evidencing payment of application fee.
§  Memorandum of appearance with copy of the Board Resolution or the executed Vakalathnama, as the case may be.


Other Documents to be attached: 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 two months, 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 petitioner 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:
As per Rule 68(5) of the NCLT Rules, 2016 the company shall at least fourteen days before the date of hearing:
§  News Paper Advertisement: Advertise the petition in Form NCLT-3A, 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. (read with Rule 35 of NCLT Rules, 2016)

§  Speed Post to Creditors: serve, by registered post with acknowledgement due, individual notice in Form NCLT. No. 3B to the effect set out in sub-rule (a) on each debenture-holder and creditor of the company; and

§  Service of Petition to ROC: serve, by registered post with acknowledgement due, a notice together with the copy of the petition to the Central Government, 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.

Affidavit Verifying News Paper Advertisement:
§  Publication on Website: Where the advertisement is being given by the company, then the same may also be placed on the website of the company, if any.

§  Affidavit to NCLT: An affidavit shall be filed to the Tribunal, not less than three days before the date fixed for hearing, stating whether the petition has been advertised in accordance with this rule and whether the notices, if any, have been duly served upon the persons required to be served:

Fourth Step:
File Form INC-27 with the Registrar of Companies within 30 days from date of order of NCLT- along with given documents:-

§  Minutes of the member’s meeting where approval was given for conversion and alteration of the articles of association.
§  Copy of SR
§  Copy of altered MoA & AoA
§  Order of NCLT
§  Any other information may be in optional attachment


ROC shall close the former registration and issue fresh certificate of incorporation, after registering the documents submitted for change in class of company along with order of NCLT.

POST CONVERSION REQUIREMETNS
1.     
Arrange new PAN No. of the company
2.     
Arrange new stationary with new name of the Company
3.     
Update company bank account details
4.     
Intimate all the concerned authorities like GST / Bank
5.     
Printed copy of new MOA & AOA.

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). 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


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