Convert Public Company to Private Company

Businesses take the strategic decision of shifting from a public to a private company to operate with more freedom, privacy, and lesser regulatory overhead. Normally, the public companies are listed on the stock exchange with tight regulations governing operations to protect shareholders. 

On the other hand, private companies are owned and operated more discreetly and flexibly. The article here has endeavoured to describe reasons for conversion, the legal procedure involved, and the implications thereof.

Provisions Regarding Conversion of Public Company into Private Company

Of the elaborate provisions under the Companies Act, 2013, and the Companies (Incorporation) Rules, 2014, applicable in relation to a change in status of a public company to become a private company.

Companies Act of 2013

1. Section 2: The definitions of the terms "Public Company" and "Private Company" which are quite vital for this research on their differences and process of conversion.
2. Section 12 Provisions regarding the registered office of a corporation, which would come into effect after the alteration of the status.
3. Section 14 It shall be deemed that the AO A of the existing public company is amended which makes it a private company .
4. Section 15 To convert it into a private company, the Memorandum of Association (MOA) and the Article of Association (AOA) need to be amended and filed with the respective Registrar of Companies.
5. Section 88 deals with the register of the company which has to be updated post-conversion.
6. Annual general meetings are dealt under Section 96 which differ under the two types of companies.
7. Section 100 deals with the procedure involved in an extraordinary general meeting required prior to any resolution connected with conversion consideration.
8. Section 117 Registration of resolutions with Registrar This is applicable where structural changes are affected.
9. Board resolutions will be governed by the conversion as provided under Section 173. 

The Companies Incorporation Rules, 2014

1. The Companies Incorporation Rules, 2014, Rule 29 deals with procedure to alter MOA and AOA in case of conversion.
2. The Companies Incorporation Rules, 2014, Rule 33 deals with the filing and paper work which is basically required for these conversions.
3. The Companies (Incorporation) Rules, 2014, Rule 37, expounds the provisions relating to applications to convert a public corporation into a private company.

The Companies (Management and Administration) Rules, 2014

1. Rule 41, the Companies (Management and Administration) Rules, 2014, dealt with above, provides a process procedure to apply for the sanction of conversion to the concerned regulatory authorities.
2. Rule 5, it is the procedure to maintain and update the company registers incidental to the new status of private business.

Various provisions and regulations have come into force due to this procedure, which makes it complete, lawfully sound, and transparent for applicants.

Eligibility Criteria for Conversion of Public Company to Private Company

1. The membership of the Company shall be 200 persons at maximum.
2. All creditors of the Company are to accede and endorse the conversion.
3. All charges are to be cleared or No Objection Certificate by the charge holder in case there are outstanding charges.
4. No prosecution under the Companies Act 2013 should be initiated against the Company.
5. There should be no managerial dispute within the Company itself.
6. Repayments of matured deposits or debentures together with interest on them shall not be in arrears.

Step-by-Step Procedure on How to Convert Public Company to a Private Company

The following are the procedural details of the conversion of Public Company to Private Company process:

Step 1: Notice of Board Meeting

As per Section 173 of the Companies Act, 2013, the intimation is formally given to the directors of the company wherein seven days' of meeting are given.

Step 2: Board Meeting

The board of directors reads, discusses, and passes the following:

1. Conversion of the Public Company into a Private Company
2. Change in the Memorandum of Association and Articles of Association.
3. In addition, the board aims at a General Meeting to obtain consent through a special resolution by the members.

Step 3: Notice of General Meeting

Notice is issued to the shareholders with at least 21 days from the date for which such General Meeting is proposed to be held. Resolution by General Meeting:

1. The above resolution proposed for conversion.
2. Alteration of MoA and AoA.

Step 4: General Meeting

This needs to be approved through special resolution passed in the General Meeting by shareholders. This includes,

1. Conversion and alterations approvals
2. Quorum check
3. Requirement of auditor under Section 146 of the Companies Act, 2013

Step 5: Form MGT-14

30 days from date of passing of special resolution, the company files copy of form MGT- 14 with the RoC. It shall be accompanied with

1. Authenticated copies of the amended MoA and AoA.
2. Notice of General Meeting along with explanatory statement .
3. Authenticated copy of special resolution,

Step 6: Application to Regional Director (RD)

The company files an order of approval with the Regional Director wherein it applies for getting an approval and file an e-Form RD-1 within 60 days of passing of the special resolution. The following documents shall be annexed with the above form :

1. Alteration of MoA and AoA.
2. Board Resolution.
3. Schedule of Creditors and Debit holders

Step 7: Advertisement & filing List of Creditors

It issues the application for conversion in local and English newspapers along with list of creditors and debenture holders affixing therewith the application.

Step 8: Procedure for Consideration & Sanction of RD Application

Then, the RD puts the application on a processing stage. If the RD thinks that more information is required, the same is sought. In the event there are no objections from the creditors as well as other interested parties, the RD approves the same without holding any hearings.

Step 9: Application on Form INC-28 for Conversion

Once such an order is given by the RD for conversion of a company, then the company has to submit Form INC-28 with the RoC within a time frame of 30 days as a formal process towards the conversion.

Hence, gradually it would convert the entity into a private firm rather than being the company a public firm, but simultaneously not violating any type of legal laws and regulations in the process.

Conclusion

Transforming a public corporation into a private entity provides operational freedom, financial efficiencies, and more confidentiality. Nonetheless, the procedure is intricate and necessitates meticulous legal and regulatory considerations. 

Organizations must evaluate the advantages versus the obstacles and ensure the decision aligns with their long-term company plan. Comprehending the legal structure and ramifications of this transformation facilitates informed decision-making and effective implementation. 

The transformation facilitates regulated share transfer, improved ownership control, secrecy, streamlined compliance, efficient decision-making, and tailored company strategies. It permits loans to directors with minimum permission and exemption from statutory meetings.