Under Section 18 of the Companies Act of 2013 a private company be automatically converted into a public company. This can be done simply after changing the Memorandum of Association or Article of Association of the companies. There are certain things which must be considered even if a private company be automatically converted into a public company. Private companies have less requirements in comparison to public companies, hence its easy to maintain private companies in comparison to public companies. But just like other things both of them have their own benefits as well. The current write up will discuss the things related to conversion of private companies into public companies in detail. If you are interested in the same, you must go through the present writeup or blog till its last paragraph.
Types of two Different Limited Companies
It’s important to learn about the Private Limited Company Registration as well as Public Limited Company Registration separately before knowing about the things when a private company be automatically converted into a public company. The two types of main companies which are limited companies are discussed below in detail:
Private Limited Companies
A private limited company is one that has been incorporated under the Companies Act of 2013 with the Ministry of Corporate Affairs, with a minimum paid-up capital of Rs. 1 lakh, a maximum of 200 members, and two directors. These entities possess attributes such as autonomy, restricted responsibility, legal person status, unending succession, appropriate governance, and subjugation, among others.
Public Limited Companies
A Public Limited Company is a corporate entity that has been registered under the Companies Act of 2013 and has at least seven directors. The act of registering a Public Limited Company confers advantages to those seeking substantial investment for their enterprises. There have been claims that these businesses give the public access to their shares. These businesses raise money in this way. Investing is also easy because a shareholder’s liability is limited to the amount they have invested in the company. The true owners of these businesses are their shareholders.
Private Company be Automatically Converted into a Public Company
The process of a private company be automatically converted into a public company is given below. If you are the one who wants that their private company be automatically converted into a public company follow the steps given below:
- Obtain approval from the shareholders of the private company through a special resolution. The resolution must be passed in a general meeting.
- Submit an application for confirmation of the proposed conversion to the National Company Law Tribunal (NCLT).
- Submit necessary documents and information along with the application, including the special resolution, notice of the general meeting, altered memorandum and articles of association, and any other relevant details.
- If appropriate, give notification of the proposed conversion to regulatory bodies such the Securities and Exchange Board of India (SEBI).
- The NCLT will examine the application, ensuring it complies with legal requirements. The Tribunal may consider factors like the rights of creditors, public interest, and the protection of minority shareholders.
- If satisfied, the NCLT will issue a certificate approving the conversion. The effective date of conversion will be mentioned in the certificate.
- Modify the memorandum and articles of the company according to the terms specified in the special resolution and approved by the NCLT.
- Inform the Registrar of Companies (RoC) about the approval and submit the necessary documents within the stipulated time.
- Upon verification, the RoC will issue a new certificate of incorporation, officially recognizing the private company’s conversion into a public company.
- The company is now deemed a public company with all the associated rights, obligations, and compliance requirements.
- Make public disclosures as required by the listing agreements and SEBI regulations, if the public company intends to get listed on stock exchanges.
Benefits of Private Company be Automatically Converted into a Public Company
Some of the key benefits of converting private limited into public limited are given below:
- Public limited companies can use the stock market to issue shares in order to raise money from the general public.
- Increased capital through public funding provides greater financial strength for business expansion and large-scale projects.
- Being listed on the stock exchange enhances the company’s visibility and reputation in the market.
- Public companies often have a higher valuation, reflecting positively on the overall worth of the business.
- Liquidity and flexibility are made possible by shareholders’ easy access to the stock market for purchase or sale.
- Public companies can attract and retain top talent by offering stock options as part of employee benefits.
- Public status facilitates mergers, acquisitions, and partnerships, providing more strategic options.
- Public Limited Companies often enjoy higher credibility and trust among customers, suppliers, and partners.
- Access to more significant resources enables the company to explore new markets and diversify its operations.
- While there are increased compliance requirements, adhering to regulatory standards enhances corporate governance.
- Shares can be easily transferred between investors, allowing for a broader shareholder base.
- Public status can improve the company’s image, making it more attractive to potential customers and collaborators.
- Public Limited Companies can attract investments from institutional and sophisticated investors.
- Public status can open doors to international investments and collaborations, expanding the company’s global footprint.
Conclusion
private company be automatically converted into a public company under Section 18 of the Companies Act, 2013. Process of private company be automatically converted into a public company involves obtaining shareholder approval through a special resolution, filing an application with the National Company Law Tribunal (NCLT), and making necessary alterations to the memorandum and articles of the company. The NCLT’s approval is crucial, considering factors like creditor rights and public interest.
Once approved, the company must inform regulatory authorities and the Registrar of Companies (RoC). The issuance of a new certificate of incorporation marks the official conversion, making the company subject to public company regulations. This transformation necessitates compliance with additional obligations and disclosure requirements. Understanding these steps is vital for companies contemplating such conversions.
