Private Ltd to Public Company Conversion

A private company can be converted to a public company by following a specific procedure under Company’s Act 2013. A private company can become a public company by conducting an initial public offering (IPO) with the filing of forms MGT-14 and INC-27.

Why Public Limited Company?

One of the main reasons for converting into a public company is that the shareholders of the company can transfer their shares with great ease and thus can generate huge capital by the help of general public shares. The public company allows the general public to buy or sell their shares. With a higher capital, the company can pursue more investment projects to stimulate growth within the company.

What is the minimum requirement for the conversion

The requirements stated by the government for the conversion under the First Provision of SEC 14(1) are:

• Minimum requirement of 7 shareholders and three directors are required
• Minimum Authorized paid-up capital up to five Lacs
• About 75% of members consent
• Few Amendments in the article of Association
• A new, unique name for the company
• Complete annual returns filing with the registrar

What are the documents required for the conversion?

1. PAN card of the directors
2. Passport size photo of the director
3. Any identity card, either ADHAAR/Voter Id
4. Rent agreement and NOC of the landlord( in case of a rented building)
5. Latest electricity/water bill
6. DSC of the directors
7. DIN of all the members

What is the process of conversion from Private to a Public company?

There are three types of conversion according to which a private company can be converted to a public company.

Conversion by choice

1. A decision is made in a board meeting regarding the conversion where the date, time, and the venue is decided for the AGM.
2. In AGM a resolution is passed by 75% members with their consent for the conversion and altering the articles.
3. Copy of the resolution passed is filed along with the amended articles and form MGT-14 to the registrar within 30 days
4. After getting the SR no. Form INC-27 to be filed along with the prescribed fees.
5. Apply for the new certificates for incorporation and delete the word private from the existing company’s name.

Conversion by default

If a private company does not live up to the standards laid down in section 3(1)(iii) under the definition of a Private Company, the company will no longer fall under the category of private limited company. The conditions laid down by the government for the structure of private companies are:

1. Restrictions on the rights to transfer shares
2. Restriction on not including more than 50 members
3. Prohibition on any request to the public to approve any shares or debentures

In case the company fails to comply with such conditions, the company ceases. A petition is to be filed accepting the failure and to convert it into a public company. By paying prescribed fees of INR 200 along with documents like:

1. Certificate copy of AOA and MOA.
2. Copy of the document proving the company’s default
3. Copy of the petition filed
4. Bank draft of the fees paid
5. Memorandum of an impression in form no. 5 of Annexure 1

Conversion by law

In such cases a private company can transfer to the public company:

1. When a minimum 25% share capital of a private company is held by one or more public company.
2. When a private company is holding upto 25% share capital of a public company
3. If the annual turnover of the company is not less than 25 crores for three consecutive years
4. If the company starts accepting or renews deposits from the general public.

What are the benefits of converting to a public company?

The conversion may effect from the date of alteration made in the article of association. Post-conversion, the company, can raise its capital both by old and new investors. The company can quote its share on the stock exchange for the general public and shareholders to buy and sell the same.