Under the
Companies
Act (Section31), all public companies, whether originally incorporated
as a public limited company or at any time converted into a public limited
company (under section 44 of the Act), may be converted into a private
limited company, if the members so desire.
The essential conditions for such
a conversion are:-
- The company must not be listed on
any recognised stock exchange. In case of a listed company,it will have
to wait for atleast one year after its delisting.
- Shareholders' approval by special
resolution for alteration of Articles of Association for incorporation
of the definition of a private company. The Articles shall be suitably
amended to include the basic restrictions applicable on a private company
and other provisions necessary thereto.
- No resolution amending the Articles,
which has the effect of converting a public company into a private company,
shall be effective unless it has been approved by the Central Government.
- After the alteration has been approved,
a printed copy of the Article shall be filed with the Registrar of Companies
within one month of the date of receipt of the order of approval.
- The name of the company shall be
amended to include the word 'private' on all its documents.
The Companies
Act contains the following procedure for the conversion:-
- Convene a Board meeting for consideration
of the proposal of conversion of the company into a private company.
- Prepare the proposal for alteration
of Articles of Association or prepare a new set of Articles of Association
meeting the requirements of a private limited company.
- Hold the Board meeting and get approval
of the Board for the proposal, fix up the day, date and time of holding
the general meeting of the company, approve notice and explanatory statement
and authority to sign notice.
- Hold the general meeting on the fixed
day and pass the special resolution.
- Fill e-Form
23 with the copy of special resolution, explanatory statement and
Memorandum and Articles (before and after alteration).
- Pay the requisite application fee.
- Publish a newspaper notice in two
widely circulated dailies of the State where the Regd. Office of the
company is situated.
- Get a no objection letter from major
unsecured creditors and all secured creditors.
- Apply to the Central Government in e-Form
1B.
Documents to be attached with the application are:-
- Notice of extra-ordinary general meeting.
- Minutes of extra-ordinary general
meeting.
- Copy of special resolution.
- Copy of newspaper advertisement.
- Affidavit that the company is not
listed on any stock exchange.
- Reference number, date of passing
and date of filing the e-Form
23.
- Payment of requisite application
fee.
- One copy each of the annual reports
for the last three financial years.
- Copy of the last annual return.
- Altered Memorandum and Articles of
Association.
- No objection letters from major unsecured
and all secured creditors supported by an Affidavit.
- Reasons for conversion.
- Terms of appointment of all managerial
personnel.
- Power of attorney in favour of the
authorised representative.
On receipt of application, the Registrar
of Companies(ROC) shall examine:-
- Whether the interest of the public
and particularly that of the creditors will be adversely affected.
- Whether the company is listed.
- Capital contribution by members.
- Whether e-Form
23 has been passed and taken on record.
- Whether the reasons for conversion
are just and sufficient.
- How many members voted for the resolution.
- Whether any complaint against the
company is pending.
- Whether any show cause letter has
been issued to the company or its Directors.
- If there is any objection from members
and creditors.
If the ROC approves the application,
he refers it to Technical Section and Prosecution Section for their report.
The Technical Section reports on whether the relevant e-Form23 and the last years annual report and annual return has been filed and
passed/taken on record. The Prosecution Section reports on whether any
complaint is pending from anybody against the company. If during the scrutiny
any adverse point arises, that has to be looked into and the authorised
representative should take the initiative to make good the default or
defect. If the reports are satisfactory, the ROC will issue a letter granting
its approval for conversion of a public company into a private company.
The concerned ROC then issues fresh certificates of incorporation consequent
upon change of name after conversion of the company from 'Public Company'
to 'Private Company'.
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