Private limited companies are a dime a dozen, but every private limited company, at some point, wishes to turn public so as to increase scalability. The question generally put across is, “Why go public?” The answer lies in certain distinct differences that arise between private limited companies and public limited companies.
- Public companies offer the option of Initial Public Offering (IPO). Here, by going public, the company is offering its shares to the general public.
- The option of IPO thereby removes the restriction on the transferability of shares, which is a feature of private limited companies.
- There is no cap with regards to the maximum number of members in a public limited company, thereby allowing them to raise and gain easy access to funding. Therefore, growth and flexibility are ideally the reasons for the switch from private to public.
What is a Private Limited Company and a Public Limited Company?
Private Limited Company
A company that is privately held for small businesses. The liability of the members of a private limited company is restricted to the number of shares respectively held by them. The shares of a private limited company can’t be traded.
Public Limited Company
A company whose shares are traded on a stock exchange and can be purchased and traded by anyone. It is also called a publicly held company.A public limited company can offer it’s shared to general public.The Company’s Act 2013 also defines a public limited company as one that has limited liability and offers company shares to the public. Anyone can acquire the stocks of such a company either through stock-market trading or via IPOs ( Initial Public Offerings).
Procedure for Conversion into a Public Limited Company
Procedure for Conversion into a Public Limited Company (pursuant to applicable provisions of the Companies Act, 2013 and the Companies (Incorporation) Rules, 2014):
Board Meeting:
The Directors are to be issued a notice regarding the agenda of the Board Meeting. This notice has to be issued to their respective registered addresses at least 7 days prior to the date on which the Board Meeting is to be held. The following matters have to be included in the agenda of the Board Meeting for discussion: – Approval of the shareholders regarding –
- Adoption of a new/amended Memorandum of Association (MOA).
- Adoption of a new/amended Articles of Association (AOA).
- Conversion of the private limited company into a public limited company.
– Approval for conducting an EGM and the subsequent authorisation of a person to be in charge of circulation of the notice regarding the EGM.
– The date, time and place for the EGM has to be fixed as well.
– Passing of a Board Resolution for the increase in the number of directors, as a public limited company would mandate a minimum of 3 directors as per the provisions under Section 149(1)(a) of the Companies Act 2013.
Issuance of a notice regarding EGM and holding the EGM:
Once the Board Meeting has taken place, the Director/Company Secretary so appointed to circulate the notice regarding the EGM may issue to the notice to all of the following:
– Directors
– Shareholders
– Auditors
The notice of the EGM has to be given not less than 21 days prior to the date on which the EGM is to be held. However, a shorter notice period can be given if and only if the consent is given by not less than 95% of the members who are entitled to vote at the meeting. The consent has to be obtained either through:-
– Writing
– Electronic mode At the EGM, the resolutions will be passed subject to the approval of the shareholders.
Filing of the form with RoC:
Once the resolutions are passed in the EGM, the formalities with regard to form filing with the Registrar of Companies has to be completed within the stipulated time frame.
a)E-Form MGT – 14: This form has to be filed with the RoC within 30 days of passing the respective resolutions along with the prescribed fees. The form is be filed on the MCA portal, with the following attachments:
- Notice of the EGM along with the Explanatory Statement as per Section 102 of the Act.
- Certified copies of the resolutions which are passed in the EGM. – Copy of the new MOA.
- Copy of the new AOA.
b)E-Form INC – 27: This form is specifically for the application for conversion of a private limited company into a public limited company. This form has to be filed with the RoC within 15 days after passing of the resolutions in the EGM. The following documents are to be enclosed along with the form:
- Minutes of the meeting.
- Copy of the new AOA.
- Copy of the new MOA.
- Copy of the resolution(s) passed at the EGM.
- List of the members of the company along with the essential details
Documents
- Digital Signature Certificates (DSC) 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.
- Proof of business address:
- Where the premises are owned, the property papers.
- Where the premises are on a rental basis:
- No Objection Certificate from the owner.
- Rent Agreement
- Copy of utility bills (Not more than two months old)
- Certified copy of the latest financial statements.
- Copy of the latest Income Tax Return Acknowledgement.
FAQs
What Are the Post Conversion Requirements?
- Applying for a fresh PAN card is necessary
- Updating business letterheads and related stationery with the company’s new name is required
- The company’s bank account details must be updated
- Notification should be provided to tax authorities and relevant parties about the conversion to a public limited company
- Promptly produce printed copies of the new MOA and AOA
What is the minimum capital required for a public limited company?
A public limited company must meet the Companies Act’s minimum capital requirement. This requirement can vary and is specified following the legal provisions.
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