At the hour of the consolidation of a business element, the candidates are given choices for choosing their class for the company given which the Company Act 2013 arrangements will be applied. To profit from the advantages of different types, the Company Act 2013 permits changing the class post-consolidation from Privately owned business to Public company as well as the other way around.
The two companies have their advantages and impediments. The candidates some of the time want to change their class of company. The methodology followed for transforming a Privately owned business into a Public company will be examined here. The blog looks at the essential arrangements of the Companies Act 2013 for the Conversion of a Private Company to a Public Company:
What Is A Private Company And Public Company?
The Companies Act 2013 provides for different types of classes of Companies, of which the most popular in the corporate world are the Private and Public Companies. These are the most preferred, and the requisites of private limited company registration and public limited company registration are as follows:
Private Company
Section 2(68) of the Companies Act 2013 defines a Private Company. The Articles of Association (AoA) restricts the transferability of shares in the Company and prevents the public from subscribing to the claims of the Private Company. This is the main criterion differentiating the Private Company from the Public Company.
The maximum number of members for a Private Company is 200 (except in the case of One Person Company). This maximum number does not include any former employees or present employees. As the Private Company does not transfer the share freely and the limited interest of members is involved, the law has granted several privileges and exemptions to the Private Company.
Public Company
Section 2(71) of the Companies Act 2013 defines a Public Company. A Public Limited Company sells all or a portion of itself through an initial public offering. It is not a Private Company where the shares are restricted to be transferred to the public at large. The public development company can exchange an open market by offering offers to the general population on the loose to raise capital.
Key Considerations For the Conversion Of a Private Company To a Public Company
The conversion of a private company to a public company is a significant decision that involves several important considerations. Opening up to the world implies typically offering offers to the general population through a first sale of stock (Initial public offering) or an immediate posting. Here are a few vital contemplations for this transformation:
Legal and Regulatory Requirements:
- Compliance with securities laws: Ensure you comply with all relevant securities laws and regulations in your jurisdiction. Consult with legal experts specialising in securities law to navigate this complex process.
- Corporate governance: Understand the corporate governance requirements for public companies, including board composition, disclosure obligations, and shareholder rights.
Financial Preparedness for Conversion of Private Company to Public Company:
- Financial statements: Prepare audited financial statements that meet the disclosure requirements for public companies. Independent auditors should review these statements.
- Capital requirements: Assess your capital needs, as going public can be expensive due to legal and administrative costs and the need for robust financial reporting systems.
- IPO readiness: Evaluate your company’s financial health and growth prospects to determine if it’s an attractive investment for potential shareholders.
Management Team and Board Composition:
Evaluate the skills and experience of your current management team and board of directors. Public companies often need seasoned executives and directors with public company experience. Consider appointing an independent chairperson and audit committee.
Corporate Structure and Governance:
Review and potentially amend your corporate structure and bylaws to comply with public company standards. Conversion of a Private Company to a Public Company is implementing robust internal controls and financial reporting processes.
Disclosure and Transparency:
Prepare to disclose significant information about your company, including financial performance, risk factors, executive compensation, and related-party transactions.
Develop investor relations strategies to communicate effectively with shareholders and analysts.
Market Research and Timing:
Assess the market conditions and investor sentiment to determine the optimal timing for your IPO. Conduct market research to identify potential investors and understand their expectations.
Shareholder Considerations:
Inform and obtain consent from existing shareholders regarding the conversion to a public company. Determine how the ownership structure will change and how it may affect existing shareholders.
Procedure For Conversion Of a Private Company To a Public Company
Converting a private company into a public one involves a series of legal and regulatory steps, which can be complex. The particular necessities and systems can change depending on the location in which the company is founded. This is a general procedure that is often followed in many countries. Still, consulting with legal and financial professionals familiar with your jurisdiction’s laws and regulations is essential. Here are the general steps:
Calling Of Board Meeting for Conversion of Private Company to Public Company:
The Board Meeting should be held to discuss the following agendas:
- To adopt a new Memorandum of Articles (MoA) subject to shareholders’ approval.
- To adopt new Articles of Articles (AoA) subject to shareholders’ approval.
- To get the shareholder’s approval of the Conversion of a Private Company to a Public Company.
- Fix the date, time and place for holding EGM in the Company.
- To get approval for EGM and authorise someone to circulate notice of EGM.
Issue Of EGM Notice
According to the provisions of Section 101 of Companies Act, 2013, the notice of EGM will be given to all the Company’s Directors, Members and Auditors.
- The shareholder’s approval for the Conversion of a Private Company to a Public Company will be taken in the resolution passed by all the shareholders in the Extraordinary General Meeting (EGM). The notice of EGM should be given not less than 21 days before the date on which the EGM is to be held.
- The notice period to shareholders can be shorter if the consent is given in writing or through an electronic medium by at least 95% of the members entitled to vote at such meetings. Also, follow the procedure for issuing and signing notice of EGM.
- The EGM will be held on a fixed date, and a resolution will be passed. The answer will be passed for the Conversion of a Private Company to a Public Company and alteration of MoA and AoA.
Form Filing To RoC
After passing the resolution in EGM, filing Form MGT-14 within 30 days is mandatory. The attachments with the MGT-14 Form to be attached are:
- Notice of EGM
- A certified Copy of the Resolution passed in the EGM
- Copy of new MoA and AoA
File Form INC-27 within 15 days after passing the resolution in the EGM. The following attachments should be attached to the INC-27:
- Minutes of the Meeting
- Copy of Altered MoA
- Copy of Altered AoA
- Copy of the Resolution passed
- List of members in the Company with all the essential details
- Optional Attachments if required.
After the approval of Form MGT-14 and INC-27, the Registrar of Companies (RoC) will issue a new Certificate of Incorporation for the Company with the changed name.
What Documents Are Required For Conversion Of a Private Company To a Public Company?
The primary documents required for the Conversion of a Private Company to a Public Company are as follows:
- Digital Signature Certificate (DSC) of all Directors
- Directors Identification Number of all Directors
- Permanent Account Number (PAN) Card of all Directors
- Passport size Photographs of all Directors
- Adhaar Card Copy
- Rent Agreement Copy (if Rented Property)
- Electricity Bill/ Water Bill (if Business Place)
- Property Papers Copy (if Owned Property)
- No Objection Certificate (NOC) from LandLord
Conclusion
Conversion Of a Private Company To a Public Company is a complex and strategic decision requiring careful planning and execution. While the process can provide access to significant capital and other benefits, it also involves increased regulatory scrutiny and a shift in corporate culture. Companies considering this transition should consult with legal and financial experts to navigate the complexities successfully. Ultimately, the decision to go public should align with the company’s long-term strategic goals and vision for the future.
