Want to Convert your Public Company into Private Company?

Want to Convert your Public Company into Private Company?

Now you don’t need to go NCLT!!

THE COMPANIES (AMENDMENT) ORDINANCE, 2019 an ordinance further to amend the Companies Act 2013 issued on the 12th January 2019 which is having an effect from 2^nd November 2018 provides that the instead of NCLT only the approval of Central Government (Power is delegated to RD) in form RD1 shall be required. (In Section 14(2) for the word ‘Tribunal’ the words Central Government shall be substituted)

Source:- http://www.mca.gov.in/Ministry/pdf/NotificationCAO2019_15012019.pdf and Bare Act

What are the benefits anticipated with Private Company? Why one will convert the public company into a private company?

The Companies Act 2013 provides lots of relaxation in term legal compliance to a private company, few of them are listed hereunder;

- Minimum no. of Directors is 2 & minimum no. of members is 2 as well, while in case of a public company the minimum requirement is 3 and 7 respectively.

- The mandatory provision of e-voting and the postal ballot is not applicable.

- The provision of a rotational director is not applicable

- Relaxation in the constitution of Audit Committee and Nomination and Remuneration Committee " ie If such Private Company covered under Rule 4 of Companies (Appointment and Qualification of Directors) Rules,2014 then only required to constitute"

 - MCA by its notification and subject to satisfaction of few conditions (eg MGT- 7 and AOC- 4 has been duly with) has exempted from various compliances under companies act

Now let’s redefine the legal procedure for conversion of a Public Company into Private Company.

One need to alter its article of association first before proceed to convert his company

Section 14 of the Companies Act 2013 read with Companies (Incorporation) Rules 2014 shall be taken care, which provides that,

Subject to the provision of this act and the conditions contained in its memorandum if any, a company may alter its article by a special resolution including alteration having the effect of conversion of a public company into a private company.

The second Proviso of Section 14 provides that any alteration having the effect of Conversion of a public company into private company shall not be valid unless it is approved by an order of Central Government (Power delegated to RD).

An application for the said conversion shall, within 60 days from the date of passing of a special resolution, be filed with Regional Director (RD) in e-form RD-1 along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 and shall be accompanied by the following documents namely:- 

1. A draft copy of MOA and AOA with the proposed alteration
2. Copy of minutes of the general meeting at which the special resolution authorizing alteration was passed containing details of the vote cast in favor or against
3. A copy of Board resolution or Power of Attorney dated not earlier than 30 days, as the case may be, authorizing to file an application for such conversion;
4. A Declaration by a KMP that pursuant to the provisions of sub-section (68) of section 2, the company limits the number of its members to 200 and also stating that no deposit has been accepted by the company in violation of the Act and rules made thereunder;
5. A Declaration by a KMP that there has been no non-compliance of sections 73 to 76A(Deposits), 177(Audit Committee), 178( NRC & SRC), 185(Loan to Directors), 186(Loans & Investments by Company) and 188(Related Party Transactions) of the Act and rules made thereunder
6. A Declaration by a KMP that no resolution is pending to be filed in terms of Section 179(3)
7. A Declaration by KMP/Directors 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 KMP IS REQUIRED TO BE APPOINTED, THE AFORESAID DECLARATION SHALL BE FILED BY ANY OF THE DIRECTORS

The e-form RD-1 must contain the following

-          Date of the Board meeting at which the proposal for alteration of Memorandum and   Articles was approved;

-          Date of the General meeting at which the proposed alteration was approved including the   legal requirement of MGT-14;

-          Reason for conversion into a private company, an effect of such conversion on shareholders,   creditors, debenture holders, deposit holders, and other related parties;

-          Details of any conversion made within the last five years and the outcome thereof;

-          Details as to whether the company is registered under section 8.

A list of creditors, debenture holders, drawn up to the latest date preceding the date of filing of an application by not more than 30 days, setting forth the details like the name, nature and amount due etc. shall be required to attach with application.

Provided that the company shall file an affidavit, signed by the Company Secretary of the company, if any, and not less than two directors of the company, one of whom shall be managing director, where there is one, to the effect that they have made a full enquiry into affairs of the company and, having done so, have formed an opinion that the list of creditors and debenture holders is correct, and that the estimated value as given in the list of the debts or claims payable on contingency or not ascertained are proper estimates of the values of such debts and claims that there are no other debts, or claims against, the company to their knowledge

     The company shall, at least 21 days before the date of filing of the application;

-          Make an advertisement in vernacular and in  English newspaper in Form 25-A

-          Serve by registered post an Individual notice on each debenture holder and creditor of the company.

-          Serve by registered post a notice to RD and Registrar and to the regulatory body if     required

Where no objection has been received from any person in response to the advertisement 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 30 days from the date of receipt of the application

RD shall within 30 days from the date of receipt of the application communicate any defects or incompleteness of application if any

In case of such defects or incompleteness in an application a facility to re-submit such application within a period of 15 days in e-Form No. RD-GNL-5 shall be given, provided that a maximum of two re-submissions shall be allowed.

Other Requirements in a specific case;

Where an objection has been received or Regional Director on examining the application has specific objection under the provisions of Act, the same shall be recorded in writing and the Regional Director shall hold a hearing or hearings within a period 30 days 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 reasons within 30 days from the date of hearing, failing which it shall be deemed that application has been approved and approval order shall be automatically issued to the applicant.

In a case where no consensus is received for conversion within 60 days of filing the application while hearing or otherwise, the Regional Director shall reject the application within the stipulated period of 60 days.

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. On completion of such inquiry inspection or investigation as a consequence of which no prosecution is envisaged or no prosecution is pending, conversion shall be allowed

Filling of Order to ROC

The order conveyed by the Regional Director shall be filed by the company with the Registrar in Form No. lNC-28 within 15 days from the date of receipt of approval.

ABOUT THE AUTHOR

Aakarshit Jai: Commerce Graduate and Company Secretary Aspirant

You can follow me on https://unacademy.com/user/aakarshit.jai

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information.

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