A company is an association of people who want to do business after obtaining legal recognition. There are a number of types of companies, but private companies and public companies are the most popular. There are certain times and situations when private companies need to be converted into public companies. This blog focuses on the private to public company conversion.
Company Types: Private and Public
A Private companies are companies that are owned by a small group of shareholders, company members, non-profit organizations, or others who are not publicly traded, and in which shares aren’t offered on the open market for sale.
According to section 2(68) of the Companies Act, 2013, a private company is a company whose articles restrict the right to transfer its shares, if any, and restrict the number of its members to fifty, as defined in the law. Additionally, because this type of company restricts the number of shares it can sell to the general public, the company is not permitted to offer shares to the general public as well.
There are many advantages to working for a private company, particularly that they do not disclose their financial records to the general public. Also, they are only responsible to their members and investors.
A Public Company is a company formed by a government organization. Under section 2(71) of the Companies Act, 2013, a public company is a company listed on a stock exchange and able to sell its shares to the public. All stakeholders must receive the annual report of a public company, and more shares can be issued to expand its business. Additionally, public companies must offer an initial public offering to the public, while shareholders can freely trade securities on a stock market.
The benefits of converting a private company into a public company
Conversion can provide the following benefits:
- Shareholders are not limited in number
- Public offering of shares for the purpose of raising capital
- Awareness of the brand
- Shares that can be transferred
Converting a private company to a public company: Key considerations
In the process of converting a private company into a public company, there are certain rules that must be followed:
- The number of members of the Company prior to its conversion to a corporation is seven under Section 3(1) of the Companies Act, 2013.
- In accordance with section 149(1) of the 2013 Companies Act, the number of directors will be increased to three.
- Under Companies (Incorporation) Rules, 2014, Rule 29(1) states that the company must pay the matured deposits.
- It is necessary for the members to approve the conversion of the Private Company to a Public Company.
- We recommend that the name clause in the Memorandum of Association (MoA) be modified in order to remove the word private.
- Company annual returns or financial statements must be filed with the Registrar of Companies (RoC).
- Company Permanent Account Numbers (PAN) must be adapted during application submission.
- Ensure that information concerning the company is communicated to the central government, where its registration is held.
- Changes should be made to the Articles of Association (AoA) so that they do not contain limitations and restrictions applicable to Private Limited Companies.
- Besides the Central Government, the Conversion should also receive approval from it.
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Conversion of a private company to a public company: Required Documents
In order for a Private Company to convert into a Public Company, some of the primary documents that must be completed are as follows:
- A copy of your property papers (if you own a property)
- Bills for electricity and water (if a business location)
- Director’s Digital Signature Certificate (DSC)
- Identifiers of all directors
- Director’s PAN card
- Director’s passport-sized photos
- Photocopy of the Aadhaar card
- A copy of the rental agreement (if the property is rented)
- Bills for electricity and water (if business is located there)