Conversion of Pvt. Ltd. to Public Limited
A Public Company has seven or more members and may invite the public to contribute to its shares. A subsidiary of a public company is meant to be a public company.
A private company is an organization that limits its number of categories to 200 and cannot invite the public to contribute to its shares. The Companies Act, 2013 provides for the conversion of a Public Company into a Private Company by altering the MOA and AOA of the Company.
Benefits of Conversion
The main advantage of the Public Company is that it can raise resources on a large scale without addressing the banking system and reducing its debt. On the other hand, private companies which are privately controlled, all funds are raised by existing members, shareholders and promoters. If a private company goes public, the opportunity is also shared between the shareholders. Once registered, public companies receive indirect promotions and support through stock clearinghouse websites where their stocks are recorded.
Earlier, the National Company Law Tribunal (NCLT) has had an influence on the conversion of the Public Company to the Private Company. Various amendments have been made to the Companies Act, 2013 and NCLT has many responsibilities. Since the Act of 2013 came into force, the NCLT has the discretion to comply with the winding-up petitions made earlier by the High Courts.
The conversion of a private company into a public company opens a new door to opportunities, typically in the case of fundraising and market access. The company can raise funds through the Public Issue and accept deposits as well. This structure is appropriate for medium and large enterprises. The conversion will be followed by the approval of the Government and the modification to MoA & AoA.
A private company may be converted into a public company by complying with the following requirements:
- Alteration of its articles, thus deleting the three restrictions of a private company, by passing a special resolution in accordance with Section 14;
- Changing its name by deleting the word 'Private' from its name by passing special resolution as per Section 13.
Process of conversion to a public limited company
Procedure for conversion to a public company (pursuant to the provisions of the Companies Act, 2013 and the Companies (Incorporation) Rules, 2014):
- Process of conversion to a public company
- Consulting and assistance for conversion
- Collection of basic information and documents
- Application of the DSC to the new director
- Preparation of the necessary resolutions
- Preparation of other required documents & affidavit
- Modification of MoA & AoA
- Provide the required documents drawn up after signature
- Online filing of the form to modify MoA & AoA
- Government processing time for approval of the application
- Online filing of the form applicable to the conversion
- Government processing time for approval of the application*
Requirements for post conversion
- A fresh PAN card must be applied for.
- All business letterheads and related stationery should be updated with the new name of the company.
- The details of the company's bank account need to be updated.
- The information shall be given to the tax authorities and other related staff regarding the conversion into a public limited company.
- Copies of the new MOA and AOA must be printed as soon as possible.
To be listed on the stock exchange is another advantage of being public. This helps companies to have easier access to capital and also makes it easier for them to scale up their operations. Companies listed also tend to have a lot more work to do in terms of compliance, as they also have to keep up with the SEBI regulations. There is therefore a lot of thought and a lot of planning going on when the company decides to go public.
Documents for Conversion of Private Company to Public Company
- Card of shareholders and directors of PAN
- Foreign nationals are required to provide a valid passport.
- Voters ID/Passport/License of Shareholders and Directors
- Address Proof: Telephone Bill/Electricity Bill/Last Bank Account Statement of Shareholders and Directors
- Photograph: Latest Passport photo of Shareholders and Directors
- Business Residence Proof: Electricity Bill/Telephone Bill Certified Office Address
- NOC from the owner: No Objection Certificate to be collected from the owner(s) of the certified office.
- Rent Lease: the rental agreement of the certified office should be granted, if any.
- Note: In the case of NRI or Foreign National, the documents of the director(s) must be notarized.
- Certificate of incorporation: declaration of incorporation, MoA & AoA to be submitted
- Financial Statements: duly certified copy of the most recent audited financial statements
- Income Tax Return: ITR filed for the preceding fiscal year to be submitted
Minimum conversion requirements
- DSC to 1 Director
- Minimum of 7 shareholders
- DIN to all directors
- Minimum authorized share capital Rs 5lacs
- Minimum paid-up capital of Rs.5lacs
- The director and shareholder may be the same person.
- Minimum of 3 directors
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Frequently Asked Questions
Yes, the suffix "Private Limited" will be replaced by the suffix "Limited."
There are limited ways, e.g.-A director's salary, Issuing dividend payments from available profits, Taking money from a limited company, as a director's loan, claiming expenses for business-related items
- The salary of the director.
- Issuance of dividend payments from available profits. Taking money from a limited company, as a loan from the director.
- Claims for expenses related to business items.