The Ministry of Corporate Affairs on 18th December 2018 by its notification has amended the Companies (Incorporation) Rules, 2014 by introducing Companies (Incorporation) Fourth Amendment Rules, 2018. Before coming of the Companies (Incorporation) Amendment, Rules, the National Company Law Tribunal (NCLT) had the power for the Conversion of Public Company into Private Company, But after Companies (Incorporation) Fourth Amendment, Rules 2018, Conversion Procedures of Public Company into Private Company are now associated with Regional Director.
Rule 41 has also been added in the rules which provides for making application for conversion for public limited company into private limited company in accordance with the regulation.
LEGAL PROVISIONS RELATED TO CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY
- SECTION 13 OF COMPANIES ACT 2013, provides for the Alteration of Memorandum of Articles (MOA) of Company. To convert the Company into Private Company, the alteration of MOA is necessary as it is requisite that the name clause of the Memorandum is having the word ‘Private’ in the name of the Company.
- Section 14 of Companies Act, 2013, provides for Alteration of Articles of Association (AOA) for Conversion of Public Company into Private Company. The Articles of the Company shall be properly amended for the addition of limiting provisions that are related to a Private Company or Adoption of new set of Articles that are applicable for Private Company as per the Companies Act, 2013.
- SECTION 18 OF COMPANIES ACT, 2013, provides for Conversion of Companies which are already registered. Section 18 provides for converting of any class of Company into another class by doing Alteration in MOA and AOA of the Company.
- RULE 41 OF COMPANIES (INCORPORATION) FOURTH AMENDMENT RULES, 2018: Rule 41 deals with Application to be filed under Section 14 for conversion of public company into private company.
PROCEDURE FOR CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY:
STEP 1: The Company should send notice to hold a Board Meeting to the directors at least 7 days before the date of Board Meeting.
STEP 2: The Company should hold the Board Meeting as per the Rules prescribed under Section-173 of Companies Act, 2013. The approval of the following items should be done:
- To take in-principal approval for conversion of Public Company into Private Company.
- To obtain approval for Alteration in Memorandum and Articles of Association and recommend the proposal for conversion to be considered by way of special resolution by the members in general meeting.
- To finalize the date, time, and venue of the general meeting and authorizing a director or any other person to send the notice for the same to the members.
- To approve General Meeting Notice along with explanatory statement to be annexed with notice as per Section 102(1) of the Act.
STEP 3: The Company should send a notice at least 21 days before to convene General Meeting for approving items mentioned in Step 2 by passing a special resolution.
STEP 4: The Company should duly hold a General meeting for the approval of Conversion of Public Company into Private Companyand pass the Special Resolution for the same along with approval of Alteration in Memorandum and Articles of Association of the Company.
STEP 5: The Special Resolution passed for conversion of Public limited into Private limited shall be filed in Form MGT-14 (Filing of Resolutions and agreements to the Registrar under section 117) with the Registrar along with the requisite filing within 30 days of the General Meeting, along with given documents:-
- Certified True Copy of the Special Resolution passed along with explanatory statement
- Copy of General Meeting Notice as circulated to the members along with annexures
- A copy of the Altered Article of Associations and Memorandum of Association
- A copy of Board Resolution
STEP 6: An Application should be drafted and filed within 60 days of passing of the special resolution to the Regional Director in e-Form RD-1.
The company shall, at least twenty-one days before the date of filing of the application:
- advertise in the Form No.INC.25A, in a vernacular 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;
- serve, by registered post with acknowledgement due, individual notice on each debenture holder and creditor of the company; and
- serve, by registered post with acknowledgement due, a notice to the Regional Director and Registrar and to the regulatory body, if the company is regulated under any law for the time being in force.
The application to the Regional Director drafted and filed in e-Form RD-1 shall be accompanied by the following documents, namely:
- a draft copy of Memorandum of Association and Articles of Association , with proposed alterations including the alterations pursuant to sub-section (68) of section 2;
- 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;
- a copy of Board resolution dated not earlier than thirty days, as the case may be, authorizing to file application for such conversion;
- declaration by a key managerial personnel that pursuant to the provisions of sub section (68) of section 2, the company limits the number of its members to two hundred and also stating that no deposit has been accepted by the. company in violation of the Act and rules made there under;
- 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 there under;
- declaration by a key managerial personnel that no resolution is pending to be filed in terms of sub-section (3) of section 179 and also stating that the company was never listed in any of the Regional Stock Exchanges and if was so listed, all necessary procedures were complied with in full for complete delisting of the shares in accordance with the applicable rules and regulations laid down by Securities Exchange Board of India:
Provided that in case of such companies where no key managerial personnel is required to be appointed, the aforesaid declarations shall be filed by any of the director.
OTHER DOCUMENTS TO BE ATTACHED WITH THE APPLICATION:
- A List of Creditors and Debenture Holders shall be annexed to the application which is drawn up to the latest practicable date preceding the date of filing of petition by not more than 30 days, setting forth the following details, namely:
- names and address of all creditors and debenture holders of the company;
- the nature of debts, claims or liabilities and their respective due amount;
- the value, in respect of any contingent or unascertained debt or any such claim admissible to proof in winding up of the company, so far as can be justly estimated of such debt or claim:
- The applicant company shall file an affidavit to the effect that they have made a full enquiry into the affairs of the company and, having done so, have formed an opinion that the list of creditors is correct, and that the estimated value as given in the list of the debts or claims payable on a contingency or not ascertained are proper estimates of the values of such debts and claims and that there are no other debts of, or claims against, the company to their knowledge. Further, the affidavit shall be signed by the company secretary of the company, if any, and not less than two directors of the company, one of whom shall be a managing director, where there is one.
STEP 7:
- Where the Regional Director on examining the application finds it necessary to call for further information or finds such application to be defective or incomplete in any respect, he shall within thirty days from the date of receipt of the application, give intimation of such information called for or defects or incompleteness, on the last intimated e-mail address of the person or the company, which has filed such application, directing the person or the company to furnish such information, to rectify defects or incompleteness and to re-submit such application within a period of fifteen days in e-Form No. RD-GNL-5.
- In cases where such further information called for has not been provided or the defects or incompleteness has not been rectified to the satisfaction of the Regional Director within the period allowed, the Regional Director shall reject the application with reasons within thirty days from the date of filing application or within thirty days from the date of last re-submission made. as the case may be.
STEP 8:
- Where no objection has been received from any person in response to the advertisement or notice and the application is complete in all respects, the same may be put up for orders without hearing and the concerned Regional Director shall pass an order approving the application within thirty days from the date of receipt of the application.
- Where an objection has been received or Regional Director on examining the application has specific objection under the provisions of the Act, the Regional Director shall hold a hearing or hearings within a period of thirty days as required and direct the company to file an affidavit to record the consensus reached at the hearing, upon executing which, the Regional Director shall pass an order either approving or rejecting the application along with the reasons within thirty days from the date of hearing.
In case where no consensus is received, the Regional Director may approve the conversion, if he is satisfied that the conversion would not be against the interests of the company or is not being made with a view to contravene or to avoid complying with the provisions of the Act, with reasons to be recorded in writing.
- Provided that the conversion shall not be allowed if any inquiry, inspection or investigation has been initiated against the company or any prosecution is pending against the company under the Act.
STEP 09: After satisfying the queries of Regional Director on processing of E-Form RD-1, the Regional Director shall pass the order of approval for conversion of Public Limited into Private Limited and approve the E-form RD-1.
STEP 10: Once E-form RD-1 is approved, the Company shall file e-form INC-28 with ROC within 15 days of receipt of order of conversion of Public Limited into Private Limited by Regional Director.
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