Conversion from Public Company to Private Company - STEPS

 

Conversion from Public Company to Private Company

A public company can convert to a private company by following these steps:

Step 1 Board Meeting

The Company shall hold a Board meeting by sending a notice at least 7 days before the date of the meeting and as prescribed under section 173 of the Companies Act, 2013.

The following shall be considered for approval in the meeting:

1.   To consider the proposal for conversion from public to private

2.   Approval for amendments in the AOA and MOA subject to members approval.

3.   To fix the date, time, and place for convene the general meeting.

Step 2 General Meeting

The Company shall hold a general meeting at the decided date by giving a notice of atleast 21 days prior to the date of the general meeting and passing a special resolution for the following under sections 12 and 14 of the Companies Act, 2013.

1.   Approval for the conversion of the Company from a Public company to a private company.

2.   Approved for alteration of MOA and AOA of the Company.

Step 3 Filing of Form MGT-14

Form MGT-14 shall be filed with ROC within 30 days from the passing of the special resolution with the necessary documents attached.

Step 4 Form INC 25A

The company atleast 21 days before from the date of filing an application to Regional Director [RD] for the conversion, shall make a public advertisement in the Form INC 25A.

The public advertisement shall be made in a local 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.

A notice of the same shall be served to the debenture holders and the creditors of the Company.

A notice of same shall also be served to all the regulatory authorities like ROC, RD, GST, IT.

Step 5 Draft an application

An application shall be drafted with following particulars.

1.   Reasons for the conversion of a Public Company to a Private Company.

2.   Effect of the conversion on shareholders, creditors, debenture holders and other related parties.

3.   The date of the Board and General meeting where the proposal for conversion was approved.

Step 6 Filing of E-Form GNL-2

Thereafter, the application will be filed in Form GNL -2 along with Proof of sending notice to Debenture holders, creditors, ROC, and other regulatory authorities.

Step 7 Filing of E-Form RD-1

An application in the E-Form RD-1 should be filed with the Regional Director within 60 days of passing of resolution with the attachments specified below:

The application shall contain the following documents:

1.   Application/petition

2.   Draft copy of altered MOA and AOA

3.   A copy of the minutes of the General Meeting at which the special resolution authorizing such alteration was passed together with details of votes cast in favor and or against with names of dissenters.

4.   Copy of Board resolution dated not earlier than THIRTY DAYS authorizing to file application for such conversion.

5.   A copy of the advertisement in Form INC 25A

6.   A declaration by the Key Managerial Personnel that the company limits the number of its members to 200.

7.   A copy of the proof of serving the notice to the creditors, debenture holders, registrar and other regulatory bodies.

8.   A declaration by Key Managerial Personnel that the company has not accepted any deposits in violation of the Act and rules made thereunder.

9.   A declaration by a Key Managerial Personnel that there has been no non-compliance of sections 73 to 76A, 177, 178, 185, 186 and 188 of the Act and rules made thereunder.

10.     A declaration shall also be given that the company has never been listed and if so, listed all necessary procedures were complied with in full for the complete delisting of the shares in accordance with the applicable rules and regulations laid down by SEBI.

11.     A list of creditors and debenture holders of a date not earlier than 30days from the date of filing of the application.

12.     An affidavit verifying the list of creditors shall also be attached to the application.

13.     Declaration as to no inspection/inquiry/investigation is pending against the Company under the Companies Act

Step 8 Objection against the advertisement

If any objection is received by the Company against the advertisement or notice served, a copy of such objection shall be served to the Regional Director.

The Regional Director, after giving a proper opportunity of being heard, shall make the decision.

Step 9 Resubmission

Where the Regional Director on examining the application if finds necessary to call for any further information or finds any information to be incomplete or defective, shall within 30 days from the receipt of the application direct to serve the complete information or ask to rectify the defect in the application.

Such rectification or re-submission shall be made within 15 days from the receipt of the notice in the E-form RD-GNL-5.

It is to be noted that a Maximum of only two (2) resubmissions are allowed.

Step 10 Approval of application

The RD shall approve the Conversion process after the required above inquiry and an order for such Conversion will be issued to the Applicant.

Step 11 Filing with the Registrar

The order issued by the Regional Director shall be filed by the Company with the Registrar in Form INC-27 and INC-28 within 15 days from the receipt of the approval.

 

Thanks & Regards,

CS Ravi Garg

E-mail: csravi2014@gmail.com

Please do not print if not necessary. Let's contribute to a better society.

Disclaimer:

IN NO EVENT THE AUTHOR SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM OR ARISING OUT OF OR IN CONNECTION WITH THE USE OF THIS INFORMATION.

Difference between LLP and Pvt Ltd
Here is the Comparison of Private Limited Company and Limited Liability Partnership (LLP) on the parameters such as Business Formation, Benefits of Business Structure, Business Management, Taxation, Accounts, Audit, Records And Legal Compliances
BUSINESS FORMATION
Criteria	LLP	Private Company
Incorporation / Registration	Incorporated under provision of LLP Act, 2008	Incorporated under provisions of Companies Act, 2013
Minimum number of owners	2 Partners required	2 shareholders required
Minimum Number of Directors / Designated Partners	2 Designated Partners required	2 Directors required
Maximum number of owners	No such limit. An LLP can have any number of partners	200 is the maximum number of shareholders allowed
Capital Requirements	No Minimum capital requirements	No requirement of Minimum Authorised and paid up capital
BUSINESS STRUCTURE
Criteria	LLP	Private Company
Liability of Owners	Limited to the agreed contribution	Limited to the unpaid amount of shares taken in the company
Duration of Business	Continue until winding up under LLP Act.	Continue until winding up under Companies Act.
Changes in the ownership	LLP will continue irrespective of changes in the ownership	Company will continue irrespective of changes in the ownership or management
Ownership of property	All assets and liabilities owned by the LLP	All assets and liabilities owned by the company
Withdrawal of Capital	Partners can withdraw capital subject to LLP agreement. It is also possible for a partner to reduce contribution liability after giving notice to creditors	Once paid up, capital cannot be withdrawn by shareholders without the approval of court. Company can buy back the shares subject to Companies Act.
Interest on capital	LLP can provide interest on capital without any approval subject to LLP Agreement.	Company cannot provide interest on capital to shareholders
Termination of ownership	A partner continues as a partner in the LLP even after transferring all his rights in the LLP unless LLP agreement provides otherwise. A partner can even resign from the LLP.	A shareholder (member) can terminate membership by transferring the shares in his name to any person subject to conditions in Articles of the company. A shareholder cannot resign from the company.
Removal from the ownership	It is possible to remove a partner from the LLP subject to the LLP agreement.	It is not possible to remove a shareholder from the company by others. However, the shares of one shareholder can be transferred to another person
BUSINESS MANAGEMENT
Criteria	LLP	Private Company
Directors / Designated Partners	Designated Partner should be a partner in LLP.	A director need not be a shareholder.
Management	LLP is managed by partners as per LLP agreement. Partners can delegate management power to a management team or single partner	Management of Company is vested with Board of Directors elected by shareholders
Meetings for Management Decisions	No such requirements of meetings. Decision process as per LLP Agreement.	In case of a private company, Directors are required to meet once in every quarter.
		In case of a small company, dormant company and a private company (if such private company is a start-up) there should be at least one meeting of the Board of Directors in every half of a calendar year and the gap between the two meetings is not less than ninety days.
Ownership Meetings for specific Decisions	No requirements of meetings of Partners of LLP.	General meeting of shareholders to be conducted once in a year mandatorily.
Remuneration	Working partners can take remuneration subject to LLP agreement	Directors can take remuneration. No restriction in Companies Act
ACCOUNTS, AUDIT, RECORDS AND LEGAL COMPLIANCES
Criteria	LLP	Private Company
Accounts	Accounts to be maintained with all supporting documents	Accounts to be maintained with all supporting documents
Audit Requirements	Accounts to be Audited by a Chartered Accountant only if the turnover exceeds Rs.40 Lakhs or contribution exceeds Rs.25 Lakhs.	Accounts to be Audited by a Chartered Accountant whether the company does any business not.
Registers and Records	LLP is not required to maintain any Registers, Records and Minutes unless specifically mandated by LLP agreement. Partners are at liberty decide the requirements.	Limited Company is required to maintain lot of Registers, Records and to keep Minutes of Board Meetings and General Meetings from time to time irrespective of doing business or not.
Annual and Event based Filings	LLP is required to file certain statutory returns annually and other filings based on certain events from time to time irrespective of doing business or not.	Company is required to file certain statutory returns annually and other filings based on certain events from time to time irrespective of doing business or not.
TAXATION
Criteria	LLP	Private Company
Permanent Account Number (PAN)	LLP is required to have a separate PAN other than partners	Company is required to have a separate PAN other than Shareholder or Director
Tax Rate	LLP is taxable at ‘Firm’ tax at 34.80%  on net profit of the LLP.	Company is taxable at 22% on net profit and the Effective IT Rate (IT+Surcharge+Cess) will be 25.52%.
Dividend Distribution Tax (DDT)	Profit after tax will be credited to partners’ account and it will not be taxable in the hands of partners again.	Company Profit, if distributed as Dividend, it  will attract Dividend Distribution Tax (DDT) @ 20.36% on dividend
Taxability of Dividend in the hands of Shareholder  / Partner	Profit distributed by an LLP is completely exempted in the hands of Partner.	Dividend from a domestic company up to ₹10 Lakhs is exempted in the hands of a Shareholder. Dividend in excess of ₹10 Lakhs shall be taxable at 10% in the case of a resident individual/HUF/Firm
Tax Filings	Required to file Tax returns every year. In case of no business, a ‘NIL’ return is required to be filed. Delay in tax return Filings will attract Penalties and the Loss can’t be carried forwarded for setoff	Required to file Tax returns every year. In case of no business, a ‘NIL’ return is required to be filed. Delay in tax return Filings will attract Penalties and the Loss can’t be carried forwarded for setoff
STARTUP BUSINSES CRITERIAS
Criteria	LLP	Private Company
External Investment – Angels / VC / PE etc.	External Investment and even Foreign Direct Investment is Possible. However, attracting Investors to LLP is a difficult task.	Best suitable business model for attracting External Investments from Angels / VC / PE
Start-up India Registration	LLP can be registered under Start-up India program.	Private Company can be registered under Start-up India program.
Employee Stock Options Plans for attracting Employees	Not Possible	Only a Private / Public Limited Company can issue Employee Stock Options Plans for attracting Employees

 

Thanks & Regards,

CS Ravi Garg

E-mail: csravi2014@gmail.com

Please do not print if not necessary. Let's contribute to a better society.

Disclaimer:

IN NO EVENT THE AUTHOR SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM OR ARISING OUT OF OR IN CONNECTION WITH THE USE OF THIS INFORMATION.

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