As per the Indian Companies Act, 2013, there are many kinds of entities or we can say companies. They include but are not limited to Public Limited Company Registration, Private Limited Company Registration, One- Person Company, Section 8 Company Registration etc. Section 18 of company law talks about the conversion of already registered entities under Companies Act to another entity under the same act. One of the examples of this is to convert a private business into public business. Section 18 of the company law says that any company can be converted into another company as per the procedure given in the law by simply making changes in the MOA and AOA of the company. In this blog, we will see the requirements to convert a private business into a public one.
Difference between Public Business and Private Business?
Some of the key differences between the private and public business are given below. In order to convert a private business one must understand both of them properly.
| Public Businesses | Private Businesses |
| It can be funded by the public . | It is owned and traded privately. |
| Public can buy and sell shares. | Public has no right related to the shares. |
| At least 7 members are required to start a public company. | At least 2 members are required to start a private company. |
| At least 3 Directors must be there | At least 2 Directors must be there. |
| Privacy is not maintained here. Everything is open to the public. | Privacy is maintained here. |
| Shares are transferred freely. | Shares are not transferred freely. |
| E.g. Bharat Petroleum Corporation Ltd | E.g. Reliance Industries |
Requirements to Convert a Private Business to a Public Business
To convert a private business into public business, there are some conditions which have to be fulfilled. Conversion has many benefits for the private company. After conversion, it becomes easy for the shareholders to transfer its shares. Also capital can be collected from the general public. This helps the company to gain recognition. It becomes popular and known in the market. The investors then prefer to invest in a public company rather than a private company. Some of the key requirements of the conversion of private business into public includes expansion of the business, in order to make the business big with the big investors, to get more funds for the business, to make the business more appealing in the market etc.
Easy steps to Convert a Private Business into a Public Business
Follow the steps given below in order to convert a private business into a public one:
Application to ROC
The Private Company who wants to convert itself to Public Company has to give an application to the Register of Companies (ROC) telling it about the transform. If ROC accepts the application then it issues the incorporation certificate. And the conversion is done. Conversion does not affect the debts, contracts etc. of the previous private company. Only the thing which is affected is the Status. i.e., earlier it was called a private company and now it will be called a public company. As the company had less number of members when it was private. Therefore, now it needs to increase its members to three.
Setup Board Meeting
It is very important to inform the board of directors about the conversion. Therefore, a board meeting should be held. All directors must know about the meeting seven days before it is held. The following matters given below should be discussed in the meeting:
- Inform the company’s shareholders about the conversion and take their approval.
- Discuss about making changes in the old Memorandum of Association.
- Discuss about making changes in the old Article of Association.
- Discuss about holding an Extra- ordinary General Meeting (EGM). An EGM is a meeting held to discuss urgent matters. The date, time and place of such meetings must be decided and informed the shareholders accordingly.
Notify about the EGM and Holding the EGM
In the meeting of the Board of Directors, a Secretary will be appointed. He/she will be called the Company Secretary. It is his/her duty to inform everyone (Directors, Shareholders and Auditors) about the EGM going to be held. A notice, describing everything about the meeting will be circulated to all. This notice must be given before 21 days of the meeting. In case this condition is not fulfilled then at least 95% members consent is needed. Only after finishing this process, application to the ROC must be made. In the meeting at least 75% shareholders must vote in favor of the conversion. This is called passing a special resolution.
E- Form MGT- 14
If 75% voting is done, then the company must fill an E- form. This E- form has to be submitted to the ROC within 30 days. Along with the form, some documents have to be attached too. These include the notice of the meeting of the directors, copy of the special resolution, new MOA and AOA etc.
E- Form INC- 27
Along with the above mentioned form, this E- form too has to be filled. It has to be given to the ROC in 15 days, after resolution passed in EGM. Along with this form, certain documents must also be attached which are the newly made MOA and AOA, details of minutes of the meeting, new resolutions passed in the EGM, details of directors, shareholders etc.
Incorporation Certificate
After everything mentioned above is submitted to the ROC, it then grants the Certificate of Incorporation. However, this will only be granted if the ROC is satisfied with the documents. If the ROC finds any mistake in the documents, then it raises queries or asks for clarifications. Once, ROC is left with no doubts then it grants the certificate. This certificate is proof that the company is successfully converted into a public company.
Make Changes in the Other Documents
Now, the company has to make changes to all the official documents, letterheads, contracts etc. It also has to apply for a new PAN. It also has to inform all the people it deals with, such as banks, shareholders, investors, tax authorities etc. The company also has to gain knowledge about the working of a public company. As the working of private and public companies is different.
Documents Required to Convert a Private Business into Public
Some of the key documents required in order to convert a private business into a public business are:
- Memorandum of Association
- Article of Association
- Resolution passed in the meeting
- Shareholders resolution for conversion
- Names of all Shareholders
- Names of all Directors
- Names of all creditors
- Digital Signature Certificates of all directors
- Director Identification Number (DIN) of all directors
- Identity proof of all directors
- Address proof of all directors
- Passport size photographs of all directors
- Company address
- If the company place is on rent, then rent agreement
- If the company is not the owner of the place, then Non- objection certificate from the owner.
- Electricity bill, water bill etc. of the last three months
- Latest Financial statements of last three months
Time required to Convert a Private Business into Public
The entire process of converting a private business into public is a lengthy one. It takes around 6 to 12 months to complete this process. However, if the ROC finds any mistakes in the documents or forms, then it can take more time to finish the conversion process. Hence it is really important to take help of an expert in order to complete the process errorlessly. Time which is mentioned here is an approximate time. It may be less or more as per the requirement of the situation.
Conclusion
Hence, it is concluded that a private business can be converted into a public business by following the proper procedure given under the company law. In order to convert a private business into a public one expert advice must be taken, so that the entire process can be completed easily. Though conversion is beneficial in many ways, it also has some drawbacks. They include costs and energy required for changing all the official documents, MOA, contracts etc. It also leads to the loss of privacy as public companies are open to all unlike the private companies. But more or less its conversion is beneficial and benefits are more than the petty drawbacks.
