Monday, February 8, 2016

PROCEDURE FOR CONVERSION OF PUBLIC COMPANY INTO A PRIVATE COMPANY


PROCEDURE FOR CONVERSION OF PUBLIC COMPANY INTO A PRIVATE COMPANY

Article Written by: CS DIVESH KOYAL

Keeping in view the relaxations provided to a Private Company, many public companies have converted into Private Companies or in the process of such conversion. Through this brief write up an attempt has been made to unlock the technicalities related to Conversion of Public Company into Private Company prescribed under Companies Act, 2013. We believe that the procedure for Conversion of Public Company into Private Company along with sample resolutions discussed through this article would be of some help for you all.
 
Conversion of status of company from public to private would become effective form the date of receipt of the approval of the Registrar through the change of name would become effective on the issue of fresh Certificate of Incorporation.
The Companies Act, 2013 was expected to simplify the provisions but on the contrary it brought lot of restrictions on doing business. Therefore the public companies are converting themselves into private limited company.
REGULATORY REQUIREMENTS:
Legal Provisions related to Conversion of Public Company into Private Company are given in Section 18 and 14 of the Companies Act, 2013 read with Rule 33 of Companies (Incorporation) Rules, 2014.
 
Bare Act Language of Section 18 and 14 of the Companies Act, 2013 and Rule 33 of Companies (Incorporation) Rules, 2014 given at the end of Article.
As per Section 13 and Section 14 of the Companies Act 2013 read with Rule 33 of Companies (Incorporation) Rules, 2014. A public company can be converted into the private company only after obtaining its shareholders approval by way of passing of special resolution in general meeting.
[As per Second Proviso of Section 14(1)]
For Conversion of Public Company into Private Limited Company foremost requirement is Alteration in Article of Association of Company. According to the Act alteration of article of association of public company cannot be done without previous approval of Tribunal.
 
But As per General Circular No. 18/2014 dated June 11, 2014. “For Conversion of Public Company into Private Limited Company the corresponding provisions of Companies Act, 1956 shall remain in force till corresponding provisions of Companies Act, 2013 are notified. Power of Central Government will be vest into the ROC.”
PROCEDURE/STEPS FOR CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY

S. No.
STEPS
ACTION
A.  
BOARD MEETING
ISSUE NOTICE in accordance with the provisions of section 173(3) of the Companies Act, 2013, for convening a meeting of the Board of Directors. Main agenda for this Board meeting would be:
AGENDA :
Pass a board resolution to get in principal approval of Directors for conversion of a public company into a private company by altering the AOA subject to the approval of Central Government;
Fix date, time and place for holding Extraordinary General meeting (EGM) to get approval of shareholders, by way of Special Resolution, for conversion of a public company into a private company.
To approve notice of EGM along with Agenda and Explanatory Statement to be annexed to the notice of General Meeting as per section 102(1) of the Companies Act, 2013;
To authorize the Director or Company Secretary to issue Notice of the Extra-ordinary General meeting (EGM) as approved by the board.
B.   
NOTICE OF GENERAL MEETING:
 
Provisions of the Section 101 of the Companies Act 2013 provides for issue of notice of EGM in writing to below mentions at least 21 days before the actual date of the EGM :
Ø  All the Directors.
Ø  Members
Auditors of Company
C.  
CONVENE A GENERAL MEETING:
·         Check the Quorum.
·         Check whether auditor is present, if not. Then Leave of absence is Granted or Not. (As per Section- 146).
·         Pass Special Resolution.[Section-114(2)] to get shareholders’ approval for Conversion of Public Limited Company into Private Limited Company along with alteration in articles of
·         association
·         Approval of Alteration in MOA & AOA.
D.    
ROC FORM FILING
For alteration in Article of Association for conversion of public company in Private Company under section 14, few E-forms will be filed with concerned Registrar of
Companies at different stages as per the details given below
E- Form MGT.14
As per Section 117(3)
Copy of this special resolution is required to be filed with concerned ROC through filing of form MGT.14 within 30 days of passing special resolution in the EGM
ATTACHMENT:
i.      Notice of EGM along with copy of explanatory statement under section 102;
ii. Certified True copy of Special Resolution;
iii. Altered memorandum of association;
iv. Altered Articles of association
v. Certified True copy of Board Resolution may be attached as an optional attachment.
It is relevant to note that First you have to file form MGT.14 as SRN No. of form MGT.14 will be used in form INC.27
E- Form INC.27
Any alteration having the effect of conversion of a Public company into a private company shall not take effect except with the approval of the Tribunal which shall make such order as it may deem fit.
Accordingly an Application for conversion of a public company into a private company is required to be filed in e-Form INC.27 to the ROC concerned, with all the necessary annexure and with prescribed fee.
ATTACHMENT:
i.      It is mandatory to attach Minutes of the member’s meeting where approval was given for conversion and altered articles of association.
ii.      No need to attach copy of order of Competent Authority.
iii.    Altered Articles of Association.
iv.    Other information if any can be provided as an optional attachment
Note:
Some ROC require following further documents in INC-27.
i.         Affidavit from Director or MD or WTD stating following:
ü  That Company was never listed with any stock exchange, never it accepted any deposit;
ü  Letter of no objection have been obtained from all creditors /Debentures holders.
ü  No demand from Sales Tax or Income Tax or Excise is pending
ii.      Copy of certificate of Commencement of Business.
iii.      Certified list of Creditors of the Company as on date of EGM.
iv.      Certified list of Members of the Company as on date of EGM.
v.      Proof of filing of statutory report with ROC.
vi.      List of cases pending before any court of Law where company is a party.
If ROC satisfied then ROC shall close the former registration and issue fresh certificate of incorporation, after registering the documents submitted for change in class of company.

POST CONVERSION REQUIREMENTS
A.  
Arrange new PAN No. of the company
B.   
Arrange new stationary with new name of the Company
C.  
Update company bank account details
D.  
Intimate all the concerned authorities like Excise and sales tax etc about the status change
E.   
Printed copy of new MOA & AOA.

 SAMPLE SPECIAL RESOLUTION:
Sample Special Resolution for conversion of a Public Company into a Private Company
SPECIAL BUSINESS

ITEM NO.-1

Conversion of Company into Private Limited Company

To consider and if thought fit, to pass with or without modification(s), the following Resolution as a Special Resolution:-
RESOLVED THAT pursuant to provisions of Section 18 read with the provisions of Section 13 and 14 of the Companies Act, 2013 and subject to the approval of the Central Government and members by way of special resolution at the general meeting of the company be converted into the private limited company and the name of the company be changed from _______________________________ LIMITED to _______________________________ PRIVATE LIMITED by addition of the word “PRIVATE” before the word “LIMITED.

FURTHER RESOLVED THAT a new set of Articles of Association as applicable to Private Company as placed before this meeting be approved and adopted as new set of Articles of Association of the company
FURTHER RESOLVED THAT Mr. __________________ (DIN: ______________), director of the company, be and is hereby authorized to make an application to the Registrar of Companies, NCT of Delhi and Haryana, in prescribed form and file the requisite e-forms and to do all such acts, deeds and things as may be required to give effect to the above said resolution.
FURTHER RESOLVED THAT ___________________, ACS-_______________ CP-___________, be and is hereby authorized to certify all the e-forms filed in the course of giving effect to the above said resolution.

ITEM NO.-2
To modify the Memorandum of Association as per Companies Act, 2013

To consider and if thought fit, to pass with or without modification(s), the following Resolution as a Special Resolution:-

RESOLVED THAT pursuant to the provisions of Section 13(1) and (9) and all other applicable provisions, if applicable, of the Companies Act, 2013 read with the rules framed, the existing clause III(B) and III(C) of Memorandum of Association ne and are hereby deleted and new clause III(B) of Memorandum of Association be and is hereby inserted as per new Companies Act, 2013 as MATTERS WHICH ARE NECESSARY FOR FURTHERANCE OF THE OBJECTS SPECIFIED IN CLAUSE III(A) of the Memorandum of Association of the company. The new clause III(B) will be read as follows:
EXPLANATORY STATEMENT PURSUANT TO SECTION 102 OF THE COMPANIES ACT, 2013
ITEM NO. 1
The Company is being converted into a private company now. The company was incorporated as Private Limited Company but by virtue of Section 43(a) of the Companies Act, 1956 it was converted into a Limited Company. Since Company has very small numbers of shareholders and company is in no need of more funding from capital and in the interest of shareholders and stakeholders, it would be better to convert company into a Private Company and company can work effectively as a Private Limited Company so it is being proposed to convert into a Private Limited Company since it has not much shareholders and its funds requirements are low.
Moreover conversion into a Private Company shall not affect any debts, liabilities, obligations or contracts incurred or entered into, by or on behalf of the company before conversion and such debts, liabilities, obligations and contracts may be enforced in the manner as if such conversion had not been done.
The company is being converted into a Private Limited Company now and a new set of Articles of Association as applicable to a Private Company is being adopted.
The Directors recommend the Resolution for Member’s approval as a Special Resolution
None of the directors or KMP and their relatives is concerned or interested financially or otherwise in passing of this resolution.
ITEM NO. 2

The ancillary objects in the Clause III(B) of the Memorandum of Association are being changed with the requirements of Companies Act, 2013 and new set of MATTERS WHICH ARE NECESSARY FOR FURTHERANCE OF THE OBJECTS SPECIFIED IN CLAUSE III(A) are being adopted.
The Directors recommend the Resolution for Member’s approval as a Special Resolution
None of the Directors or key managerial personnel or any relative of any of the Directors of the Company or the relatives of any key managerial personnel is, in anyway, concerned or interested in the above resolution

 

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