The Companies Act (Sections 43, 43A,44), contains two procedures for such a conversion.

Conversion by default

The Companies (Amendment) Act,2000, stipulates that the Articles of a private company shall provide for four restrictions:-

• Restrictions on transfer of shares;



• Restrictions on invitation to public to subscribe to the shares or debentures of the company;



• Restrictions on the maximum number of members which should not exceed 50 excluding members who are employees or ex-employees of the company; and



• Prohibition on any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

If default is made by any private company in complying with any of the above restrictions, such a private company shall cease to be entitled to the privileges and exemptions conferred on a private company by the Act and all the provisions which are applicable to a public company shall apply to such a private company.

However, it is provided that the company or any person interested may file a petition before the Central Government along with the requisite fee, to grant relief in committing the default. The petition shall be accompanied by the following documents:-

• Copy of the Memorandum and Articles of Association;



• Copy of the documents showing that the default has been committed in complying with the conditions laid down under the Act;



• Affidavit verifying the petition;



• Bank draft evidencing the payment of requisite application fee;



• Memorandum of appearance with copy of the Board Resolution or the executed Vakalatnama, as the case may be.

The Central Government on being satisfied that the failure to comply with the conditions envisaged under the Act was accidental or due to inadvertence or due to some other sufficient cause, or that on other grounds it is just and equitable to grant relief, may order that the company or any other person interested be relieved from the consequences of default, on such terms and conditions as seem to the court just and expedient.

From the date of the order, the company will again be entitled to all the privileges and exemptions available to a private company. But during the intervening period, the provisions of the Act as are applicable to a public company shall apply.

Conversion by an act of Volition

A private company may get itself converted into a public company voluntarily by following the procedure for conversion:-

• Convene a Board meeting and decide the time, place an agenda for convening a general meeting to alter the Articles of Association and consequently, the name, by Special Resolutions. It is, however, advisable to adopt a new set of Articles applicable to a public company. This is necessary as there are other Articles like quorum for general meetings; number of directors and the period of service of notice of a general meeting, etc. which are also to be changed.



• Send notice for the general meeting proposing the Special Resolutions along with suitable Explanatory Statements.



• If the quorum of two members personally present exists, then convene the general meeting and pass the Special Resolution to the following effect:-
  
  
  • To delete those articles which are required to be included in the articles of a private company only. Such other articles which do not apply to a public company, should be deleted and those which apply should be inserted.
  
  
  
  • Consequent to the above changes, delete the word "private" from its name.
  
  
  
  • To raise the paid-up capital to minimum Rs. 5 lakhs. In case the authorised capital is less than Rs. 5 lakhs than it shall also require to be increased.
  
  
  
  • To raise the capital from public.
  
  
  



• File either the prospectus in the Form as prescribed under Schedule II or the Statement in lieu of prospectus in the Form as prescribed under Schedule IV within thirty days of passing of the above special resolutions.



• Director's consent to act as such in e-Form 32 is not required to be filed by a private company converted into a public company.



• File the Special Resolutions passed and the Explanatory Statements with the concerned Registrar of Companies(ROC) in e-Form 23 within thirty days of their passing, along with the requisite fee.



• Apply to the concerned ROC for the issue of a fresh certificate of incorporation in the changed name i.e. the existing name with the word "private" deleted. On issue of such a certificate, the change of name of the converted company shall be final and complete.



• If the company has less than three directors, then increase the number of directors to atleast three. If the company has less then seven members, then increase them to atleast seven.



• Although the company becomes a public company as soon as the Special Resolution to change the Articles to make it a public company is passed, the change in its name becomes effective only on the issue of the fresh Certificate of Incorporation by the concerned Registrar of Companies(ROC) in the changed name.



• When a private company is converted into a public company, it is not required to obtain a certificate of commencement of business.



• A statutory meeting must be held if such a conversion is before six months of the incorporation of the company.

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