ALL ABOUT
CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY
A COMPLETE PROCESS AND CHECKLIST
Transmission of Conversion Power and Process from NCLT to
Regional Director by Rule 41 and The Companies
(Incorporation) Fourth Amendment, Rules 2018.
Before coming of the
Companies
(Incorporation) Amendment, Rules, the National Company Law Tribunal (NCLT) has the
power for the Conversion of Public Company into Private Company, But after Companies
(Incorporation) Fourth Amendment, Rules 2018, Conversion
Procedures of Public Company into Private Company are now associated with
Regional Director.
The Companies (Incorporation) Fourth Amendment, Rules 2018: MCA on 18th December, 2018 by amendment
inserted Rule 41 under Companies
(Incorporation) Rules, 2014 for conversion of public Companies into
Private Companies
By Rule 41 MCA has assigned its power to Regional Director for
approval of conversion of public companies into private companies.
LOGIC/REASON BEHIND
CONVERSION
The
Private Company has less compliance as compared to Public Company to be
followed under the Companies Act, 2013. The need for less compliance leads
to increase Conversion of Public Company into Private Company. In this
article, we will go through the provisions and procedure related to the Conversion
of Public Company into Private Company.
By
the Conversion of Public Company into Private Company, it gets easier to meet
the regulatory provisions and exercise greater control in the Company
WHAT ARE LEGAL PROVISIONS RELATED TO
THE CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY
·
SECTION 13 OF COMPANIES ACT,
2013, provides
for the Alteration of Memorandum of Articles (MOA) of Company. The Conversion
of Public Company into Private Company can be done if the Memorandum allows for
the Conversion. Hence, to convert the Company into Private Company, the
alteration of MOA is necessary. Also Include the Change in Name Clause.
·
SECTION 14 OF COMPANIES ACT,
2013, provides
for Alteration of Articles of Association (AOA) for Conversion of Public
Company into Private Company. If New Article is not adopted then it also to be
adopted as per Companies Act, 2013.
·
SECTION 18 OF COMPANIES ACT,
2013, provides
for Conversion of Companies which is already registered. Section 18 provides
for converting of any class of Company into another class by doing Alteration
in MOA and AOA of the Company.
·
THE COMPANIES INCORPORATION
(FOURTH AMENDMENT) RULES, 2018, the Conversion of Public
Company into Private Company is explained. The Central Government has wide
powers to amend the said rules. This Power Delegated
to the Regional Director.
E-FORMS
INCLUDED:
ü
Form MGT 14 :
To file for Special Resolution Passed in General Meeting.
ü
GNL-2 :
Submission of Documents to ROC
ü
Form RD-1 : Application
of Conversion made to Regional Director.
ü
Form RD-GNL-5 : To
file re-submissions to RD (filing Addendum for Rectification of Defects or
Incompleteness
ü
Form INC-28 : To
file copy of Order of RD
THE
STEPS AND PROCEDURE FOLLOWED FOR CONVERSION OF
PUBLIC COMPANY INTO PRIVATE COMPANY ARE AS FOLLOWS:
Step-1
NOTICE
OF BOARD MEETING
The Company should
send notice to hold a Board Meeting to the directors at least 7 days before the
date of Board Meeting.
Step
-2
HOLD THE BOARD MEETING
The Company should
hold the Board Meeting as per the Rules prescribed under Section-173 of
Companies Act, 2013. The approval of the following items should be done:
- To
consider the proposal for Conversion of Public Company in to Private
Company.
- To
Authorize and Give Authority to Director/Company Secretary for Conversion.
- To
approve amendments in MOA and AOA of the Company is subject to member’s
approval through a special resolution.
- To
fix time, date and place for General Meeting and authorize a Director/Company
Secretary to send notice of General Meeting to member.
- To approve the draft notice along with
Explanatory Statement of the general meeting
Step
-3
ISSUE THE NOTICE OF GENERAL MEETING
The Company should
send a notice at least 21 days before to convene General Meeting for approving
items mentioned in Step 2 by passing a special resolution.
Step-4
HOLD GENERAL MEETING AND PASS THE SPECIAL
RESOLUTIONS UNDER SECTION 13 & 14 TO:
·
The Company should duly hold a General meeting for
the approval of Conversion of Public Company into Private Company.
·
The consent for the Alteration in MoA and AoA should
also be given through a special resolution. Approve the
Alteration of Memorandum of Company to comply with the provisions of Section 2
(68).
·
Approve the
Alteration of Articles of the Company to comply with the provisions of Section
2 (68) and for Adoption of new Article as per the Companies Act, 2013 (If
Required).
In General Meeting, the quorum should also be
checked. As per Section 146 of Companies Act, 2013, the presence of Auditor
in the General Meeting is necessary, if not present, then check whether Leave
of Absence is granted or not.
Step-5
FILE
FORM MGT-14 TO ROC
The
form MGT-14 should be filed within 30 days of passing of the special
resolution. The Form MGT-14 should be attached with the
following documents:
- certified copy of Altered MOA
- certified
copy of Altered AOA
- Copy
of Notice of General Meeting with an explanatory statement
- certified
copy of passed Special Resolution
- Certified
copy of Board Resolution
Step-6
21
DAYS BEFORE COMPLIANCES
The Company Shall,
At Least Twenty One Days before the Date of Filing of the Application to Rd:
a) advertise
in the Form No.INC.25A, in a
vernacular newspaper in the principal vernacular language in the district and
in English language in an English newspaper, widely circulated in the State in
which the registered office of the company is situated;
b) serve,
by registered post with acknowledgement due, individual notice on each debenture holder and creditor of the
company; and
c)
serve, by registered post with
acknowledgement due, a notice to the
Regional Director and Registrar
and to the regulatory body, if the
company is regulated under any law for the time being in force.
Step-7
DRAFT AN APPLICATION
Meanwhile Draft the Application/Petition and it
shall set out the following particulars, namely:-
·
the date of the Board
meeting at which the proposal for alteration of Memorandum and Articles was
approved;
·
the date of the general
meeting at which the proposed alteration was approved;
·
reason for conversion into
a private company, effect of such conversion on shareholders, creditors,
debenture holders, deposit holders and other related parties;
·
details of any conversion
made within last five years and outcome thereof along with copy of order;
·
details as to whether the
company is registered under section 8.
And also draft and prepared all related Annexure, Declarations,
Affidavits etc. for the filling of form RD-1. Arrange
and prepared all the docs required for the Filling of the same.
Step-8
FILLING
OF E-FORM RD-1
An application should be filed in E-Form
RD-1 within 60 days of passing of Resolution with
Regional Director along with the fee as provided in the Companies (Registration
Offices and Fees) Rules, 2014 with following attachments:
The following documents should accompany the application
(Attachment of RD-1):
a)
Signed Copy of Application/Petition
b) Draft
copy of Altered MOA and AOA pursuant to
sub-section (68) of section 2;
c)
Copy of the MINUTES of
the general meeting with details of votes cast in favour and or against with
names of dissenters.
d)
Copy of Board resolution dated not earlier
than THIRTY
DAYS authorizing to file application for such conversion
e)
Scanned & Signed Copy of ADVERTISEMENTS as
advertised in the Form No.INC.25A.
f)
DECLARATION by
KMP (If no KMP in the Company by any of the Directors) that:
i. The
company limits the number of its members to TWO HUNDRED.
ii. NO
DEPOSIT has been accepted by the Company in violation of the
Act and rules made thereunder.
iii. There
has been NO NON-COMPLIANCE of sections 73 to 76A, 177,
178, 185, 186 and 188 of the Act and rules made thereunder.
iv. NO
RESOLUTION is pending to be filed in terms of sub-section (3)
of section 179 and
v. The
Company was never listed in any of the Regional Stock Exchanges and if was so
listed, all necessary procedures were complied with in full for complete
delisting of the shares in accordance with the applicable rules and regulations
laid down by Securities Exchange Board of India.
Other Mandatory Attachments:
a)
There shall be attached to the application, a LIST OF
CREDITORS, DEBENTURE HOLDERS, of a date NOT MORE THAN
30 DAYS before the filing of Application with Regional
Director, WITH FOLLOWING DETAILS:
i.
Name and Address of every creditor and debenture
holder.
ii.
Nature and amounts due to them in respect of debts,
claims or liabilities.
iii.
In respect of any contingent or unascertained debt,
the value, so far as can be justly estimated of such debt or claim.
b)
The Company shall file AN AFFIDAVIT,
signed by the Company Secretary of the Company, if any, and not less than two
directors of the company, one of whom shall be managing director, where there
is one, to the effect that they have made a full enquiry into affairs of the
company and, having done so, have formed an opinion that the list of creditors
and debenture holders is correct, and that the estimated value as given in the
list of the debts or claims payable on contingency or not ascertained are
proper estimates of the values of such debts and claims that there are no other
debts, or claims against, the company to their knowledge
c)
Proof of Serving the Notice to all Creditors,
Debenture holders, Registrar and other Regulatory Bodies.
STEP 9
IF OBJECTION RECEIVED AGAINST ADVERTISEMENT
a)
If any objection is received from any person in
response to the advertisement or notices mentioned above, the Company shall
submit the copy of Objection with the Regional Director.
b)
Where objection is received the regional director
will call the person who raised objection and to the Company (any
Representative on behalf of the Both) for hearing and after giving proper
opportunity to being heard, the regional director will take the decision.
STEP 10
ANY FURTHER DOCS REQUIRED TO RD/RESUBMISSION
After
the submission of details to the Regional Director (RD), some more information
can be asked by RD. These resubmissions should be submitted in 15 days.
Where the Regional Director on examining the application finds
it necessary to call for further information or finds such application to be
defective or incomplete in any respect, he shall within thirty days from the
date of receipt of the application, give intimation of such information called
for or defects or incompleteness, directing the person or the company to
furnish such information, to rectify defects or incompleteness and to re-submit
such application within a period of FIFTEEN DAYS in e-Form No. RD-GNL-5.
The application can be rejected by RD within 30 days
period from the date RD asked for resubmission of application if the
resubmissions are not made. A maximum of 2 resubmissions is allowed.
STEP 10
HEARING
OR ORDER BY RD
Hearing
if Objection is there:- The RD can hold a hearing in case of objection
received. The RD should give reasons in writing of the hearing and hearing
should be held within 30 days.
If no consensus is received for Conversion within 60
days from the date of filing of the application, the RD can reject the
application within the stipulated period of 60 days.
Direct
Order if no any objection: If the application is complete, the same can be put
up for orders without hearing. The application submitted should be passed by RD
within 30 days from the date of filing of an application.
If no order of approval, rejection or resubmission
is made by RD within 30 days, the application filed is deemed to be allowed by
the RD, and approval order shall be automatically issued to the applicant.
The RD when approves the Conversion process, an
order for such Conversion will be issued to the applicant.
Step-11
FILLING
OF COPY OF ORDER IN FORM INC-28
The order conveyed
by the Regional Director shall be filed by the company with the Registrar in Form No. lNC-28 within fifteen days
from the date of receipt of approval along with fee as provided in the
Companies (Registration Offices and Fees) Rules, 2014.]
Conclusion
Conversion of Public Company into Private Company is
time taking and involves the various formalities prescribed in Companies Act,
2013 and rules made hereunder. The Private Company has a benefit of less
compliance over Public Company and lots of exemptions of Companies Act
Provision. Sometimes, there are controversies regarding the Conversion, but if
the consensus of all the shareholders is obtained the process of Conversion
would go smoothly and efficiently. The process of Conversion is long-lasting
and lengthy. But this process/checklist an help to do smoothly.
IMPORTANT NOTE
VALIDITY OF INC-27 IN RESPECT OF CONVERSION OF
PUBLIC COMPANY INTO PRIVATE COMPANY:
Rule
33 of the Companies (Incorporation) Rules, 2014 (Alteration of Articles)
1.
For effecting the conversion of a private
company into a public company or vice versa, the application shall be filed
in Form No.INC.27 with
fee.
2.
Subject to the provision of sub-rule (1), for
effecting the conversion of a public company into a private company, a copy of
order of the Tribunal approving the alteration, shall be filled with the
Registrar in Form No. INC -27 with
fee together with the printed copy of altered articles within fifteen days from
the date of receipt of the order from the Tribunal.]
Explanation
- For the purposes of this sub-rule, the term “competent authority” means, the
Central Government.
But since Companies
(Incorporation) Fourth Amendment Rules, 2018 has been effective i.e. since 18th December,
2018, the Tribunal i.e. NCLT has no power regarding approval of conversion of
Public Company into private company and it is delegated to Regional Director,
so there is no question of filing of order of Tribunal. HENCE E-FORM INC-27
is not required to be filed in respect of Conversion of
Public Company into Private Company but the same is required to be filed in
vice versa case. But In some cases it is required to file for change the
status at MCA master data from public to private. MCA has to give clarification
in this regard.
POST CONVERSION STEPS:
1.
Intimate the changes to Banks, Income Tax
Department, PF Department, ESI Department and all other departments.
2.
Make all requisite changes in the signboards, Letter
heads, Books Rubber Stamps, Bill Books, Common Seal, visiting cards and other
documents and items.
3.
Use word “Formerly” for at least 2 years on every
documents of the company with present name.
4.
Use the copy of altered Memorandum and Articles of
the Company.
5.
Make the changes in PAN, TAN, GST Portal.
6.
Request to Bank for the change in name of Bank
Accounts.
7.
Intimate other regulatory authority in this regard.
Note:-
Some Affidavits are required to submit to RD in RD-1 Form but
those are not mentioned in Rules 41 and Section, kindly consider following
affidavits to be the part of RD Form:-
Affidavits
verifying the correctness of list of creditors - by two Directors of the
Company
ü
Affidavit proving publication, dispatch and service
of notice
ü
Affidavit proving no objection(s) received in
respect of advertisement in newspapers by two directors of the Company
ü
Affidavit from director in term of section 14 of the
Companies Act, 2013 & Rule 41 of the Companies (Incorporation) Rules, 2014
ü
Affidavit for company to limit the number of members
to two hundred and no deposits accepted by the company in violation of the act
and rules as per Rule 41 (1) (d) of the Companies (Incorporation) Rules, 2014
ü
Affidavit for no non-compliance of various sections
of the act and rules made thereunder as per Rule 41 (1) (e) of Companies
(Incorporation) Rules, 2014.
ü
Affidavit from Two directors regarding no
litigation(s) pending before any court or judicial authority
ü
Affidavit regarding no resolutions is pending to be
filed U/S 179(3) and the company was never listed in any of the regional stock
exchanges as per rule 41 (1) (f) of the Companies (Incorporation) Rules, 2014
ü
Affidavit from director(s) regarding no future
liabilities, dues pending before any government, statutory body
SPECIAL BUSINESS:
1. CONVERSION OF COMPANY INTO PRIVATE LIMITED COMPANY:
To consider and, if thought fit, to pass, with or without
modification(s), the following resolution as a Special Resolution:
“RESOLVED THAT pursuant to the
provisions of section 13, 14 and any other applicable provisions of the
Companies Act, 2013, if any and subject to the approval of the Regional
Director__________ Region, (powers delegated to the Regional Director by
Central Government vide Companies (Incorporation) Fourth Amendment Rules, 2018)
the consent of the shareholders of the Company be and is hereby given to
convert the Company from ‘Public Limited’ to ‘Private Limited’ and consequently
the name of the company be changed from “____________ LIMITED” to
“_____________- PRIVATE LIMITED” by inserting the word ‘Private’ before the
word ‘Limited’.
RESOLVED FURTHER THAT for
the purpose of giving effect to this resolution, the Board of Directors of the
Company be and is hereby authorized to execute all such documents, instruments
and writings as may be required and to take all such steps and actions and give
such directions as may in its absolute discretion deem necessary and to settle
any question that may arise in this regard.
RESOLVED FURTHER THAT any
of the Directors be and are hereby severally authorized to do all such acts,
deeds and things as may be necessary or expedient to give effect to this
resolution.”
2. ALTERATION OF NAME CLAUSE CONTAINED IN THE MEMORANDUM
OF ASSOCIATION:
To consider and, if thought fit, to pass, with or without
modification(s), the following resolution as a Special Resolution:
“RESOLVED THAT pursuant
to the provisions of Section 13 and any other applicable provisions of the
Companies Act, 2013 (including any amendment thereto or re-enactment thereof)
and the rules framed thereunder the consent of the Members be and is hereby
accorded for substituting Clause I of the Memorandum of Association of the
Company with the following clause:
“The Name of the Company is __________ PRIVATE LIMITED.”
3. ADOPTION OF NEW SET OF ARTICLES OF ASSOCIATION OF THE COMPANY
PURSUANT TO THE COMPANIES ACT, 2013 AND CONVERSION TO A PRIVATE LIMITED
COMPANY:
To consider and, if thought fit, to pass, with or without
modification(s), the following resolution as a Special Resolution:
“RESOLVED THAT pursuant to the
provisions of Section 14 and other applicable provisions, if any, of the
Companies Act, 2013 (“the Act”) read with Companies (Incorporation) Rules,
2014, including any statutory modifications or re-enactment thereof from time
to time, the Articles of Association of the Company be and is hereby altered to
be in conformity with the provisions of the Act relating to a private limited
company and thereby inserting the restrictive clause as per Section 2(68) of
the Act.
RESOLVED FURTHER THAT the
new set of Articles of Association pursuant to the Act primarily based on the
Form of Table F of Schedule I under the Act, be and is hereby approved and
adopted as new set of Articles of Association in the place of existing Articles
of Association of the Company.
RESOLVED FURTHER THAT any
of the Directors be and are hereby severally authorised to do all such acts,
deeds and things as may be necessary or expedient to give effect to this
resolution.”
For and on behalf of the Board
_______________ Limited
_________________
Director
DIN:_________
Place:___________
Date: __________, 2021
FORMAT OF EXPLANATORY STATEMENT U/S 102 OF THE
COMPANIES ACT, 2013
ITEM 1:
As the members are aware that the Company was originally
incorporated on _________ as a public limited company. The Board of directors
considered that since there is no involvement of public in the shareholding or
management of the Company, it would be appropriate to convert the Company into
the Private Limited Company to avoid unnecessary formalities and to obtain
privileges which are available to the Private Limited Companies under the
Companies Act, 2013 which would help the management to carry out its affairs
efficiently & economically.
As per the provisions of the Companies Act, 2013,
the consent of the members by way of special resolution is required for
conversion of the Company to a private limited company.
The Members are requested to note that the amendment
is subject to the approval granted by the Registrar of Companies, ___________,
Ministry of Corporate Affairs and such other regulatory authorities, as may be
required.
Directors and their relatives are concerned or
interested in the said resolution only in their capacity as a member of the
Company.
ITEM 2:
The conversion of the Company to a private limited company will
result in amending the name clause of the Memorandum of the Company since the
name of the Company will change from “_________ LIMITED” to “___________
PRIVATE LIMITED”.
In terms of Section 13 of the Companies Act, 2013, the
consent of the members by way of special resolution is required for amendment
of the Memorandum of Association of the Company. The Board has approved the
amendment at its meeting held on ________, 201__.
The Members are requested to note that the amendment
is subject to the approval granted by the Registrar of Companies, __________,
Ministry of Corporate Affairs and such other regulatory authorities, as may be
required.
Directors and their relatives are concerned or interested in the
said resolution only in their capacity as a member of the Company.
ITEM 3:
The Company was incorporated under the provisions of The
Companies Act, 1956 and deemed to exist within the purview of The Companies
Act, 2013. Hence the existing Articles of Association (AOA) were based on the
Companies Act, 1956 and several clauses/regulations in the existing AOA contain
references to specific sections of The Companies Act, 1956 which are no longer
in force.
With the coming into force of The Companies Act, 2013, several
regulations of the existing AOA of the Company require alteration or deletions
at several places. Also, as it is proposed to convert the Company into a
Private Limited Company, it is considered expedient to adopt new set of
Articles of Association (primarily based on Table F set out under the Companies
Act, 2013), in place of existing Articles of Association of the Company instead
of amending the Articles of Association by alteration/incorporation of
provisions of the Companies Act, 2013 applicable to a private limited company.
In terms of section 5 and 14 of the Companies Act, 2013, the
consent of the members by way of special resolution is required for adoption of
new set of Articles of Association of the Company.
The Members are requested to note that the amendment is subject
to the approval granted by the Registrar of Companies, __________, Ministry of
Corporate Affairs and such other regulatory authorities, as may be required.
Directors and their relatives are concerned or interested in the
said resolution only in their capacity as a member of the Company.
For and on behalf of the Board
___________ Limited
_________________
Director
DIN:
______
Place:
_____
Date:
-_______, 2021
