CONVERT YOUR BUSINESS
PRIVATE LIMITED COMPANY TO PUBLIC LIMITED COMPANY
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OVERVIEW
PRIVATE LIMITED COMPANY TO PUBLIC LIMITED COMPANY
A Private Limited Company is an excellent business structure for small businesses. But once the business grows enough to expand to different parts of the country, it is not sustainable to depend on few investors or take loans. When a Private Limited Company wants to expand its operations, an ideal way to raise capital without entering into debt is by turning Public and issuing an IPO. This way, the company has access to a large number of Public Investors who are willing to contribute to the company.
But this process is highly regulated by the Indian Government as large amounts of financial transactions are taking place, which may lead to potential losses due to malicious intent. Hence a Private Limited Company wanting to turn Public should strictly adhere to the following steps detailed in this article.
First, let us get an overview of both types of companies.
DEFINITION
WHAT IS A PRIVATE AND A PUBLIC LIMITED COMPANY?
Private Limited Company:
A private limited company is a type of business entity that is privately held and limited by shares. In this form of business, the liability of the shareholders is limited to the amount of capital they have invested in the company. The company cannot raise capital from the public and the shares cannot be traded on the stock exchange. A private limited company is required to have a minimum of two directors and two shareholders, with the maximum number of shareholders capped at 200. The shares of a private limited company are held privately among a group of individuals or entities, and the company is not required to disclose its financial information to the public.
Public Limited Company:
A public limited company is a type of business entity in which the company’s shares are listed on a stock exchange and can be traded by the public. In this form of business, the liability of the shareholders is limited to the amount of capital they have invested in the company. The company can raise capital from the public by issuing shares, bonds, or other securities. A public limited company is required to have a minimum of three directors and seven shareholders. The maximum number of shareholders in a public limited company is not fixed. The shares of a public limited company can be traded on a stock exchange, and the company is required to comply with strict regulatory requirements related to financial reporting, disclosure, and corporate governance.
KEY DIFFERENCES
KEY DIFFERENCES BETWEEN A PUBLIC AND A PRIVATE LIMITED COMPANY
The choice between the two types of companies depends on various factors such as the size of the business, the number of shareholders, funding requirements, and the level of regulatory compliance that the company is willing to undertake. Some of the major differences between a Public and a Private Limited Company are listed in the following table.
ADVANTAGES
ADVANTAGES OF A PUBLIC LIMITED COMPANY OVER A PRIVATE LIMITED COMPANY
A Public Limited Company (PLC) offers several advantages over a Private Limited Company (PLC). Some of these advantages are:
Access to Capital:
One of the main advantages of a PLC is the ability to raise capital from the public through the issuance of shares. This provides a PLC with a greater ability to finance its growth and expansion plans. In contrast, a Pvt Ltd Company has restrictions on the issuance of shares to the public and may only raise capital from its members or through private placement.
Limited Liability:
PLC offers limited liability to its shareholders, which means that the personal assets of the shareholders are not at risk in case the company runs into financial trouble. In contrast, a Pvt Ltd Company has limited liability, but it only extends to the extent of the share capital invested by the shareholders.
Better Brand Image:
A PLC enjoys a better brand image than a Pvt Ltd Company due to its larger size, public presence, and greater visibility. This helps in building trust and credibility with customers, suppliers, and other stakeholders.
Attracting and Retaining Talent:
A PLC is able to attract and retain top talent by offering better compensation packages, employee benefits, and stock options. This helps in creating a motivated and committed workforce, which in turn, contributes to the company’s growth and success.
Exit Route:
A PLC offers greater liquidity to its shareholders, who can buy or sell shares on the stock exchange. This provides an exit route to the shareholders who wish to sell their shares and exit the company. In contrast, a Pvt Ltd Company has restrictions on the transfer of shares and may not offer an easy exit route to its shareholders.
Easier Access to Credit:
A PLC enjoys easier access to credit from banks and financial institutions due to its larger size, public presence, and better credit rating. This helps in financing the company’s growth and expansion plans.
Overall, a Public Limited Company offers several advantages over a Private Limited Company. However, the decision to convert a Pvt Ltd Company to a PLC should be based on the company’s growth plans, financing requirements, and the regulatory compliance requirements.
PRIVATE TO PUBLIC LTD.
THE CONVERSION PROCESS
The process for converting a Private Limited Company to a Public Limited Company in India involves several steps. Here is a detailed explanation of each step:
Step 1 : Board resolution:
The directors of the Private Limited Company must first pass a resolution approving the conversion to a Public Limited Company.
Step 2 : Shareholders’ approval:
The shareholders of the Private Limited Company must then pass a special resolution approving the conversion. This resolution must be passed by a majority of not less than three-fourths of the shareholders.
Step 3 : Alteration of Memorandum and Articles of Association:
The Memorandum and Articles of Association of the Private Limited Company must be altered to reflect the conversion. The alteration must be made in accordance with the provisions of the Companies Act, 2013 and the rules made thereunder.
Step 4 : Change of name:
If the Private Limited Company wishes to change its name in connection with the conversion, it must apply for a new name by filing Form INC-1 with the Registrar of Companies.
Step 5 : Filing of forms:
The company must then file the following forms with the Registrar of Companies:
- Form MGT-14: This form must be filed within 30 days of passing the special resolution, along with a copy of the resolution and the altered Memorandum and Articles of Association.
- Form INC-27: This form must be filed within 30 days of passing the special resolution, along with a copy of the resolution and the altered Memorandum and Articles of Association.
- Form SH-7: This form must be filed within 30 days of issuing the notice for the general meeting to pass the special resolution, along with a copy of the resolution and the altered Memorandum and Articles of Association.
Step 6 : Payment of fees:
The company must pay the prescribed fees for filing the forms with the Registrar of Companies.
Step 7 : Approval of Registrar of Companies:
Once the forms have been filed and the fees have been paid, the Registrar of Companies will review the documents and either approve or reject the conversion.
Step 8 : Issue of fresh certificate of incorporation:
If the Registrar of Companies approves the conversion, a fresh certificate of incorporation will be issued to the company. The company will then be deemed to be a Public Limited Company from the date of the certificate.
Step 9 : Compliance with other regulations:
The company must comply with all other regulations that apply to Public Limited Companies, such as the listing requirements of stock exchanges, if applicable.
In summary, the conversion of a Private Limited Company to a Public Limited Company involves passing a special resolution, altering the Memorandum and Articles of Association, filing forms with the Registrar of Companies, and obtaining approval from the Registrar of Companies. The company must also comply with all other regulations that apply to Public Limited Companies.
FORMS
FORMS
The Forms MGT-14, INC-27 & SH-7 have to be submitted by the Private Limited Company to the Registrar of Companies (ROC) for the conversion of the Private Limited Company to a Public Limited Company. Each of these forms serve a specific purpose and different set of details should be filled in these forms. Let us see those in detail
FORM MGT-14
Purpose:
This form is used to file certain resolutions passed by the company in its general meetings. It is a mandatory filing requirement under Section 117 of the Companies Act, 2013. Some examples of resolutions that need to be filed in this form include resolutions related to the appointment or removal of directors, alteration of the company’s articles of association, and approval of the company’s financial statements.
Details Enclosed:
- Name, address, and corporate identity number (CIN) of the company
- Details of the resolution(s) being filed, including the date of passing, the nature of the resolution, and the number of shares affected (if applicable)
- Name and address of the company secretary or director responsible for filing the form
- Any attachments, such as copies of the resolution(s) or relevant board minutes
FORM INC-27
Purpose:
This form is used to apply for the conversion of a Private Limited Company to a Public Limited Company. It is filed with the Registrar of Companies (ROC) and includes details such as the name of the company, its registered office address, the date of incorporation, and the type of company it is converting to. The form also includes a declaration stating that the company has complied with all the requirements of the Companies Act, 2013 for the conversion.
Details Enclosed:
- Name, address, and CIN of the company
- Details of the proposed conversion, including the type of company it is converting from and to, the date of incorporation, and the reason for the conversion
- A list of the company’s directors and their consent to the conversion
- A declaration stating that the company has complied with all the requirements of the Companies Act, 2013 for the conversion
- Any attachments, such as copies of the company’s memorandum and articles of association
FORM SH-7
Purpose:
This form is used to file any changes to the share capital of a company, such as the issuance of new shares or the alteration of existing share capital. In the context of a Public Limited Company, this form may be used to file any increase in the company’s authorized share capital or the issuance of new shares through a further public offering. It is filed with the ROC within 30 days of the resolution authorizing the change to the share capital.
Details Enclosed:
- Name, address, and CIN of the company
- Details of the change to the share capital, including the type of change (e.g., increase in authorized share capital, issuance of new shares), the number and class of shares affected, and the nominal value and issue price (if applicable)
- A copy of the relevant board resolution authorizing the change
- Any attachments, such as copies of the amended memorandum and articles of association or the share certificate(s) for the new shares issued.
DOCUMENT REQIURED
DOCUMENT CHECK LIST
The following is an extensive list of documents necessary for the conversion of a Private Limited Company to a Public Limited Company in India:
- Memorandum of Association (MoA)
- Articles of Association (AoA)
- Board resolution for conversion to a public limited company
- Shareholders resolution for conversion to a public limited company
- Copy of the latest audited financial statements
- Copy of the latest income tax return
- Copy of the latest balance sheet
- Copy of the latest annual return filed with the Registrar of Companies
- Copy of the certificate of incorporation
- List of all the directors along with their personal details, such as name, address, and contact information
- List of all the shareholders along with their personal details, such as name, address, and contact information
- List of all the shareholdings of the shareholders, along with the details of the shares held by them
- List of all the charges or mortgages on the company’s assets
- Details of the registered office of the company
- Proof of address of the registered office, such as rent agreement or utility bill
- Consent letters from the directors and shareholders for the conversion of the company to a public limited company
- Approval from any regulatory authorities, if required
- Any other documents as required by the Registrar of Companies or any other regulatory authority.
It is important to note that the list of documents may vary depending on the specific requirements of the Registrar of Companies or any other regulatory authority.
TAXKEY HELP
HOW CAN TAXKEY HELP?
Taxkey experts have helped dozens of businesses transition from a Private Limited Company to a Public Limited Company. With our experience, we can visualize the entire process, anticipate potential places where mistakes happen and provide you with the proper guidance for the successful conversion of your business.
In addition to the conversion process, numerous other compliance regulations must be met for your newly transitioned Public Limited Company. These compliances are far more extensive than those you have encountered for your Private Limited Company. Our experts at Taxkey will guide you through every step of the new Compliances and will constantly educate you on the best practices to follow in future years.
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