Benefits of Converting to a Private Company

Converting to a private company offers several benefits, including:

• Greater Control: Private companies allow owners to maintain tighter control over operations and decision-making.
• Reduced Compliance: Private companies face fewer regulatory requirements compared to public companies, including lower member thresholds and the absence of statutory meeting requirements.
• Flexibility in Management: Private companies enjoy more freedom regarding shareholder composition and remuneration practices.
• Simplicity: With fewer compliance obligations, private companies can focus more on growth and operational efficiency.

Eligibility Criteria for Conversion of Public Limited to Private Limited Company

To qualify for conversion from a public to a private company, the following conditions must be met:

1. Member Limit: The number of members should not exceed 200.
2. Creditor Approval: All creditors must agree to the conversion.
3. Satisfaction of Charges: All financial charges must be settled, or a No Objection Certificate (NOC) must be obtained from the charge holder.
4. No Prosecution: There should be no ongoing legal proceedings against the company under the Companies Act, 2013.
5. Compliance History: The company must be compliant with all necessary filings with the Registrar.
6. No Managerial Disputes: There should not be any existing disputes among management.
7. Repayment Status: The company must not have defaulted on any repayments for matured deposits or debentures.

Step-by-Step Procedure for Conversion of Public Limited to Private Limited Company

Following is the procedure for Conversion of Public Limited to Private Limited Company:

Step 1: Board Meeting

The conversion process begins with a board meeting. A notice must be sent at least seven days prior to the meeting. During this meeting, directors will consider:

• The proposal for conversion from public to private.
• Amendments to the MOA and AOA, subject to member approval.
• Setting the date, time, and location for the general meeting.

Step 2: General Meeting

A general meeting must be held at the predetermined date, with at least 21 days’ notice. In this meeting, a special resolution will be passed to approve:

• The conversion from a public company to a private company.
• The alteration of the MOA and AOA.

Step 3: Filing Form MGT-14

Following the passing of the special resolution, Form MGT-14 must be filed with the Registrar of Companies (RoC) within 30 days, along with the necessary documents.

Step 4: Public Advertisement (Form INC 25A)

At least 21 days before applying to the Regional Director for conversion, the company must publish a public advertisement in a local newspaper in both the vernacular and English languages. Notices must also be sent to debenture holders, creditors, and regulatory authorities like the RoC and GST.

Step 5: Drafting an application

The application for conversion must include:

• Justification for the conversion.
• The impact on shareholders, creditors, and debenture holders.
• Dates of the board and general meetings where the conversion was approved.

Step 6: Filing E-Form RD-1

An application in E-Form RD-1 must be submitted to the Regional Director within 60 days of passing the resolution. Required documents include:

• The application/petition.
• Drafts of the altered MOA and AOA.
• Minutes from the general meeting with voting details.
• The advertisement from Form INC 25A.
• Declarations from Key Managerial Personnel confirming compliance with the Act.

Step 7: Handling Objections

If any objections arise from the advertisement or notices, the company must forward these to the Regional Director. The Director will provide an opportunity for a hearing before making a decision.

Step 8: Resubmission

If the Regional Director finds any deficiencies in the application, the company must rectify these within 15 days of notification, with a maximum of two resubmissions allowed.

Step 9: Approval of Application

Upon review, the Regional Director will either approve the application or request further information. Once approved, an official order for conversion will be issued.

Step 10: Filing with the Registrar

The order from the Regional Director must be filed with the Registrar in Forms INC-27 and INC-28 within 15 days of receipt.

Post-Conversion Compliance

After the conversion, several changes must be implemented:

• Update all company documents, including letterheads and seals, to reflect the new private status.
• Use the term "formerly" for at least two years on all documents with the previous name.
• Notify banks, tax departments, and other regulatory authorities of the conversion.
• Update the company’s PAN, TAN, and GST details.