Conversion of Public Company into a Private
Company
INTRODUCTION
Before the notification issued
by the Ministry of Corporate Affairs dated 18th December, 2018 to amend the
Companies (Incorporation) Rules, 2014, NCLT was handling the cases of
Conversion of Public Companies into Private Companies and it was a time
consuming process under NCLT Bench.
Due to plenty of Insolvency
Cases, it was necessary to reduce some burden of NCLT so that the focus can be
made on Insolvency cases for the speedy resolution.
Therefore, to reduce the Burden
of NCLT, Government has taken following steps to shift the power of approval of
conversion of Public Companies into Private Companies:
1. The Companies (Amendment)
Ordinance, 2018: By inserting second proviso to sub section 1 of
section 14 through Ordinance the Government has transfer the power of tribunal
regarding approval of conversion of public companies into private companies to
central government.
2. 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.
WHY CONVERSION?
Through the Companies Act, 2013,
the Compliances of Public Companies are increasing day by day, which has put a
lot of restrictions on doing business. On the other hand MCA has exempted the
private companies from the compliances of various provisions of Companies Act,
2013 vide notification dated 5th June, 2015 and 13th
June, 2017.
Keeping in view the relaxation
given to Private Companies, a lot of public companies have converted into
private companies and many are under process.
APPLICABLE PROVISIONS:
1.
Section 13: For alteration in Memorandum of
Association of the Company
2.
Section 14: For alteration in Article of
Association of the Company.
3.
Rule 41 of Companies (Incorporation) Rules, 2014
(inserted by Companies (Incorporation) Fourth Amendment Rules, 2018 on
18.12.2018): Approval of Regional Director for conversion of Public Companies
into Private Companies.
E-FORMS INCLUDED:
1.
Form MGT
14: To file Special Resolution.
2. Form RD-1: Application
of Conversion
3. Form RD-GNL-5: To file
resubmissions
4. Form INC-28: To file
copy of Order
PROCEDURE
TO CONVERT PUBLIC COMPANY INTO PRIVATE COMPANY:
1.
HOLD THE
BOARD MEETING as per the provisions of Section 173, applicable
Secretarial Standards and other applicable provisions of Companies Act, 2013
a. To
discuss and approve the agenda of conversion and to recommend the same for
approval of Shareholders.
b. To
approve the alteration of Memorandum and Articles and to recommend the same for
approval of Shareholders.
c. To fix
the date, time and place of general meeting of Shareholder.
d. To approve the draft notice along with
Explanatory Statement of the general meeting and to authorise Company Secretary
or any other person to issue the Notice of General Meeting as per provisions of
Companies Act and Secretarial Standards.
2. ISSUE
THE NOTICE OF GENERAL MEETING at least 21 clear days before the General
Meeting.
3.
HOLD
GENERAL MEETING and PASS
THE SPECIAL RESOLUTIONS under Section 13 & 14 to:
a. Approve the
conversion of Public Company into Private Company
b. Approve
the Alteration of Memorandum of Company to comply with the provisions of
Section 2 (68).
c. Approve
the Alteration of Articles of the Company to comply with the provisions of
Section 2 (68).
4.
File Form
MGT-14 in compliance with the provisions of Section 117 (3) within 30 days of passing of Special
Resolutions in the General Meeting and attach the following Documents with MGT-14.
Attachments of Form MGT-14
a. Certified
true copy of the Resolution passed with Explanatory Statement.
b. A Signed
Copy of Notice of the General Meeting with all annexures
c. Signed
and Stamped Altered copy of Memorandum and Articles of the Company.
5.
DRAFT AN
APPLICATION for Conversion of Public Company into Private
Company to be filed to Regional Director. Following Particulars shall be set
out in the Application:
a. The date
of the Board meeting at which the proposal for alteration of Memorandum and
Articles was approved;
b. The date
of the general meeting at which the proposed alteration was approved;
c. Reason
for conversion into a private company;
d. Effect
of such conversion on shareholders, creditors, debenture holders, deposit
holders and other related parties;
e. Details
of any conversion made within last five years and outcome thereof along with
copy of order;
6.
At least TWENTY
ONE DAYS before the date of
filing of the application 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.
7.
At least TWENTY
ONE DAYS before the date of filing of the application serve, by registered
post with acknowledgement due, individual notice on each debenture holder and
creditor of the company and 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.
8.
File 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:
Attachment of RD-1
a. Signed
Copy of Application
b. Draft
copy of Altered Memorandum of
Association and Articles of
Association.
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 authorising to file application for such conversion
e. Scanned,
Signed and Stamped Copy of ADVERTISEMENTS
as mentioned in Point No. 6.
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, SETTING FORTH THE
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.
9.
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.
10. 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.
11.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.
Provided that maximum of two re-submissions
shall be allowed.
12.In cases where such further
information called for has not been provided or the defects or incompleteness
has not been rectified to the satisfaction of the Regional Director within the
period allowed i.e. FIFTEEN DAYS, the
Regional Director shall reject the application with reasons within thirty days
from the last date up to which resubmission was required to be made or from the
date of last re-submission made as the case may be.
13. If No Objection is received or
Objection received then after complying with the decision of Regional Director
as given above in point 10, and the application is complete in all respects,
the same may be put up for orders and the concerned Regional Director shall
pass an order approving the application within thirty days from the date of
receipt of the application or the date of last resubmission made, as the case
may be.
14. Obtain certified copies of the
order of Regional Director.
15.File E-form INC-28 with ROC within 30 days of confirmation of shifting
by Regional Director along with certified copy of the order of Reginal
Director.
IMPORTANT
NOTE
VALIDITY OF INC-27 in respect of Conversion of Public Company into
Private Company:
RULE 33 (2) of Companies (Incorporation) Rules, 2014 provides
that 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.
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, 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.
POST
CONVERSION STEPS:
1. Use the
copy of altered Memorandum and Articles of the Company.
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.
Make the changes in PAN, TAN, GST Portal, Bank
Accounts.
4.
Intimate the changes to Banks, Income Tax
Department, PF Department, ESI Department and all other departments.
IMPORTANT
NOTE:
USE “FORMALLY KNOWN AS _________________” FOR 2 YEARS ATLEAST ON EVERY
DOCUMENT OF THE COMPANY WITH THE PRESENT NAME.
FORMAT
OF SPECIAL RESOLUTION
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: __________, 201
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: -_______, 201
FOR
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