About Public Limited Company to a Private Limited Company
A public limited company is the one which has its securities or stocks listed on any of the countries stock exchange. A public company may have a minimum of seven or more number of members and they can invite the general public to buy their shares for the dividend. While a private company is a limited members organization and cannot invite general populous to invest in their company’s share.
Conversion of a public company into a private company
Since December 2018 any company that wants to convert from the public to private requires approval from the central government. Earlier these kinds of conversion required the approval from National Company Law Tribunal or NCLT.
For the conversion from public to a private company, the definition of the company in the Articles of Association must be amended and it should place the restrictions of private company therein.
Procedure for the conversion of public limited company into a private company
- The first step is to pass approval for conversion to a private company in the board meeting of the directors of the company. This can only be done upon the approval by the central government by altering the company’s status in the Articles of Association. The board meeting is also required to decide on the time, date, and venue of the general meeting so that it can be circulated among all the concerned members by any of the directors.
- The second step is to hold a general meeting with all the concerned members and passing a special resolution for approval of altercation in Articles of Association (AOA) and Memorandum of Association (MOA).
- The third step is to file MGT-14 form with the Registrar of Companies along with the following documents: printed copy of the altercations in AOA and MOA, copy of the special resolutions, and copy of the notice of the meeting which was sent to the members.
- The final step is to draft an application for the regional director. It should be done within 60 days of passing of special resolutions. This application shall also be accompanied by the following documents: board authorization, copy of general meeting attendance, copy of votes cast in favor or against in the general meeting, and copy of proposed alterations in AOA and MOA.
Documents required for conversion to a private company
The application for changing the status of a company from public to private one shall be accompanied by following documents along with an application.
- A draft copy with the proposed altercations in AOA and MOA.
- A detailed copy of the general meeting wherein this special resolution was passed along with the list of attendees and all the votes cast in favor or against.
- A copy authorizing of the conversion from the resolution of the board.
- A declaration copy by the key managerial personnel of the company stating the limits on members and deposits of the company to not exceed above the prescribed limit of the private company’s undertaking.
- A true copy of the declaration that the aforementioned company was never listed in the stock market. If the company was listed in the stock market then it had followed all the procedure as detailed by Securities Exchange Board of India for delisting of its shares.
While a public company enjoys the free flow of public investment but there can be many reasons for changing the status of a public company to a private one. There are many rules and regulations that a public company has to follow in order for their operations. Since it is a public investment-driven entity, the directors and key members of a public company have to always think about driving their stock prices high. Same is not the case with the private company as the private company’s president can choose to work for the growth of his or her company by seeking only their advice and without any pressure from the other investors.
Conversion to a private company also increases the flexibility and reduces the reporting and compliance requirement of the company giving its CEO more space to breathe without any pressure from the investors.
For a private company minimum of 2 shareholders are required to operate according to the norms. The shareholders can be a foreign company, Indian company or any other person if that is the case.
A private company may have a minimum of 2 or a maximum of 15 directors. If the company is Indian then one of the directors must be an Indian citizen according to the norms laid by the government of India and the others can be any foreign nationals.