Conversion of Limited Company into Private Limited Company
Conversion of Limited Company into Private Limited Company
The recent amendment of the Companies (Incorporation) Rules, 2014, has shifted the powers for the conversion of limited company into private limited company. While in the past the process was approved by the NCLT (National Company Law Tribunal), it is now under the discretion of the Regional Director. The move is aimed at facilitating the Tribunal to focus more on insolvency cases and the speedy resolution of distress companies. In this article, we look at the procedure for conversion of limited company into private limited company.
Public and Private Entities – an Overview
A company, in general, is an artificial person created by law, and are primarily classified as private and public. A private limited company is a Joint Stock Company incorporated under the Companies Act which can have upto 200 shareholders. Its facets include private ownership, limitation of the owner’s liability to ownership stake, restriction in share transfers and prohibition of extending an invitation to the public for the subscription of shares and debentures, usage of the term private limited as a suffix to its name, among others. A limited company is again a Joint Stock Company formed and registered under the Companies Act with the ability to have an unlimited number of shareholders. Thus only a limited company is entitled to issue registered securities to the general public through an Initial Public offering (IPO), which is traded on at least one stock exchange market.
However, many limited companies are not listed on stock exchanges and may have less than 200 shareholders. Such companies can be reconverted into a private limited company by following the procedures listed below.
Limited companies desirous of converting into a private limited company must advertise a notice of conversion in Form INC 25A in both English and regional vernacular newspapers. The newspaper in which the advertisement is made must be widely circulated in the State where the respective company is located. Apart from this, an individual notice must be served by registered post to all the debenture holders and creditors, as well as to the Regional Director, Registrar and the Regulatory Body. These formalities are to be completed before 21 days of filing the application.
FORMAT OF NEWSPAPER ADVERTISEMENT
Form No. INC-25A
Advertisement to be published in the newspaper for conversion of public company into a private company
Before the Regional Director
Ministry of Corporate Affairs
ln the matter of M/s……………… (company name) having its registered office at_____________ Applicant
Notice is hereby given to the general public that the company intending to make an application to the Central Government under section 14 of the Companies Act, 2013 read with aforesaid rules and is desirous of converting into a private limited company in terms of the special resolution passed at the Annual General Meeting/ Extra Ordinary General Meeting held on ____________to enable the company to give effect for such conversion.
Any person whose interest is likely to be affected by the proposed change/status of the company may deliver or cause to be delivered or send by registered post of his objections supported by an affidavit stating the nature of his interest and grounds of opposition to the concerned Regional Director (complete address of the Regional Director to be given), within fourteen days from the date of publication of this notice with a copy to the applicant company at its registered office at the address mentioned below:
For and on behalf of the Applicant
Name of Director
Address of registered office
Application in e-Form RD-1
Companies desirous of converting into a private limited company have to fill e-form RD 1 by specifying the following details:
- Date of the Board Meeting at which the proposal for alteration of the Memorandum and Articles were approved.
- Date of the General Meeting which concluded with the approval of the proposed alteration.
- Date of filing e-form MGT 14 and SRN.
- Reason for the conversion, its effect on shareholders, creditors, debenture holders, deposit holders and other related parties.
- Particulars of conversion made within the previous five years and its outcome, supported with a copy of the order.
- Details on whether the company is registered under Section 8.
- An attachment of the list of creditors and debentures holders, including details of the names and addresses of all creditors and debenture holders of the company; the nature and respective amounts due to them in terms of debts, claims or liabilities; and the value of any contingent or unascertained debt (subject to further conditions).
Documents Required for Conversion
The following documents, along with an application in e-Form RD-1, must be furnished to the Regional Director within sixty days from the date of passing the special resolution:
- Drafted copy of Memorandum of Association and Articles of Association, supported with the proposed alterations.
- Copy of the minutes of the General Meeting at which the special resolution for such alteration was passed, supported with the details of votes cast for/against it.
- Copy of the Board Resolution/Power of Attorney authorizing the filing of an application for such conversion. Such documents must not be more than 30 days old.
- Declaration by a KMP/Director stating that the company limits its membership count to 200 and that no deposits have been accepted in violation of the Act and the relevant rules.
- Declaration by KMP/Directors stating that there have been no instances of non-compliance of Sections 73-68A, 177. 178, 185, 186 and 188 of the Act and the rules made thereunder.
- Declaration by the KMP/Directors stating that no resolution is to be filed in terms of Section 179(3).
- Declaration by the KMP/Directors stating that the company wasn’t ever listed in any of the Regional Stock Exchanges; and if listed, all essential procedures were complied with in full for complete delisting of the shares in accordance with the applicable rules and regulations prescribed by the Securities and Exchange Board of India (SEBI).
Objection to Conversion
People viewing the newspaper advertisement or notice may object to the conversion on valid grounds. In the absence of the same and fulfilment of the application requisites, the concerned Regional Director may approve the proposal within thirty days of receiving it. On the other hand, any objections received under the Act would be recorded in writing, after which the Regional Director would hold a hearing within thirty days and require the company to file an affidavit to record the consensus reached during the hearing. While executing the same, the Regional Director would order the approval/rejection of application along with reasons within thirty days from the date of hearing. If the Regional Director fails to do so, the application would be considered as approved.
Need for Re-Submission
On the other hand, if the Regional Director deems the application to be defective or incomplete in any respect, he may intimate the concerned applicant to revert with the requisite changes within 15 days and re-submit the application in e-Form RD-GNL 5. It may be noted that not more than two re-submissions are allowed. If the stated corrections haven’t been made or made improperly, the Regional Director may reject the application on valid grounds within 30 days of filing the application or within 30 days of the date of the previous resubmission.
Filing with the Registrar
The orders notified by the Regional Directors must be filed by the Companies to the ROC in Form INC 28 within 15 days of the date of receipt of approval.