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Public Limited Company To Private Limited Company


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About Public Limited Company To Private Limited Company

A Public Company is a company which has seven or more members and can invite public to subscribe to its shares. A subsidiary company of a public company is deemed to be a public company. A Private Company is a company which limits its number of members to 200 and cannot invite public to subscribe to its shares.

The Companies Act, 2013 provides for conversion from one type of a company to another. A public company registered under the Companies Act, can convert to a private company by altering the Memorandum of Association and Articles of Association of the company. It is well established that a company can convert from a private company to a public company to raise capital, expand, develop markets amongst other reasons. Importantly, a company can also convert from a public company to a private company.

Minimum Requirements

  • The process is also incomplete without the approval of the new authority constituted, i.e., National Company Law Tribunal (NCLT), replacing the Company Law Board as under the old Companies Act, 1956.
  • The NCLT has been authorized vide the NCLT Rules, which came into effect on July 21, 2016. The power was transferred to the NCLT from June 1, 2016, vide Notification S.O. 1934(E).[3]
  • The order approving the conversion of the company to a private company passed by the NCLT must also be filed with the ROC along with the other requisite documents.
  • Pursuant to the passing of the special resolution, a petition must be filed in Form NCLT-1 as provided under Rules 68 of the NCLT Rules not less than 3 months from the passing of the resolution.
  • The supporting documents with the petition include copies of the MOA & AOA, documents proving the company is no longer a public company, verification affidavit and the payment of application fees (INR 5000/-).
  • The list of creditors along with the amounts due to them is to be submitted to the NCLT as well.

Process

Call for a Board Meeting to approve the conversion

Notice

  • 7 Days’ Notice
    A Notice must be sent to the directors of the company to convene the Board Meeting. This notice must be sent not less than seven days prior to the date of the meeting. The notice should be given in writing to each director at his registered address by hand delivery, post or electronic means. The agenda of the board meeting should be attached to the notice.
  • Provision for Shorter Notice
    The Board Meeting to convert to a private company can be convened at a shorter notice to “transact urgent business”. However, to transact urgent business at a shorter notice, at least one independent director has to be present in the meeting. In the event that an independent director is absent, the decisions taken at the meeting will be circulated amongst all the directors but can only be finalized upon ratification of at least one independent director, if any.
  • Pass Resolutions at the Board Meeting
    It is imperative to note that the quorum for a Board Meeting is one-third of the total strength of the directors or two directors, whichever is higher. Participation of directors by videoconference and audiovisual means is permissible.
  • At the Board Meeting, the resolution approving conversion from a public company to a private company has to be passed.
  • Secondly, a resolution to call an extraordinary general meeting must be passed. An extraordinary general meeting is imperative to get the approval of the members of the company before proceeding with the conversion.

File form MGT-14 (Filing of Resolutions and agreements with the Registrar)

  • The company has to intimate the Registrar of Companies within thirty days of passing the resolution to convert from a public company to a private company. Resolutions are filed with the Registrar in Form MGT-14 along with the prescribed fees as prescribed in the Companies (Registration offices and fees) Rules, 2014. The resolution, notice calling the extraordinary general meeting and the explanatory statement should be filed with the Registrar.
  • Form MGT-14 is available on the website of the Ministry of Corporate Affairs. The instruction kit provided with the form is helpful and self-explanatory. The form can be filled in English or Hindi. The form has to be certified and digitally signed by a whole time practicing Chartered Account or Company Secretary or Cost Accountant.
  • The following documents have to be attached with the form:
  • Copy of the resolution(s)
  • Copy of the explanatory statement
  • Altered Memorandum of Association
  • Altered Articles of Association
  • Copy of the agreement
  • Any other optional documents
  • The altered Articles of Association will have to contain all the details, which the Articles of Association of any Private Company would contain. It is crucial to note that the copy of each resolution that has the effect of altering the articles of association must be annexed to the copy of the amended Articles of Association.
  • Remember, No alteration to the Memorandum of Association and Articles of Association can be given legal effect if it is not in compliance with the provisions laid down in Section 13 and Section 14 of the Companies Act, 2013 respectively. The alterations must be made in every copy of the Memorandum of Association and Articles of Association.

Frequently Asked Questions

Conversion to a Private Company under the Companies Act, 2013 . The procedure for conversion from one company to the other is expounded within the Act with certain statutory requirements such as alteration of the Memorandum of Association (MOA) and Articles of Association (AOA) of the company.

Disadvantages

  • Original owners lose control and ownership of the business.
  • Professional directors and manager appointed to run the business may have different aims to those of the shareholders.
  • Must disclose all main accounts to the public.
  • Company can be taken over if a majority of shareholders agree to bid.

Advantages of a Private Limited Company

  • Separate Legal Entity. An entity means something which has a real existence; a thing with distinct existence.
  • Uninterrupted existence.
  • Limited Liability.
  • Free & Easy transferability of shares.
  • Owning Property.
  • Capacity to sue and be sued.
  • Dual Relationship.
  • Borrowing Capacity

Private Limited Company Registration Documents Required. To register a private limited company, the company's proposed directors would have to submit the following documents as identity proof: For Indian Nationals – PAN. For Foreign Nationals – Passport.

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