Conversion of Private Company into Public Company
There are three ways through which the conversion of a private company into a public company takes places.
There are three ways through which the conversion of a private company into a public company takes places.
1. Conversion
by default
2. Conversion
by operation of law
3. Conversion
by choice
1. Conversion by default:-
(i) According to
section 43, if a default is made in complying the statutory requirement as laid
down in Section 3(i)(iii) of the act, a private company gets converted into a
public company automatically (that is if it permits free transferability of
shares, if its membership exceeds 50 or when it extends invitation to the public
to subscribe to shares or debentures or to make deposits.)
(ii) As a result
of this the private company will not be able to enjoy the privileges and
exemptions conferred on it and the provisions of the companies Act shall apply
to it as if it were a public company.
(iii) Further, if
the company wants to remain a private company, than it should apply to the
Company Law Board for relief.
(iv) However, the
CLB on being satisfied, that the failure to comply with the condition was
accidental or due to inadvertence or to some other reason, it may grant relief
from such consequences, as aforesaid.
(v) The relief
may be granted on grounds, which the CLB feels just and equitable.
2. Conversion by the operation of Law: There are
four circumstances mentioned in section 43A which would force a private company
to become a public company. They are –
(i) Where 25% or
more its paid-up share capital is held by one or more bodies corporate or
public company.
(ii) Where the
average annual turnover is not less than 25 crores for three consecutive
financial years.
(iii) Where a
private company holds out not less than 25% of the paid-up share capital of a
public company.
(iv) Where the
private company accepts by invitation or renews deposits from the public, other
than from its members or directors and their relatives, than the private
company will become a public company, the day it accepts the deposits.
3. Conversion by choice: A private
company may be its own choice becomes a public company. The steps necessary for
this purpose are as follows:
(i) Special Resolution: A private company desiring to become public
company must pass a special resolution, deleting from its articles the
requirement of section 3(i)(iii). A copy of resolution so passed must be filed
with the Registrar of companies within 30 days.
(ii) Increase in number of directors (section
252): If the numbers of directors are less than three, it should be
raised to three.
(iii) Increase in membership (section 12): If the
numbers of member is less than 7, it should be raised to 7.
(iv) Raising of
paid up capital to the minimum, prescribed for public companies that is Rs. 5
Lakhs
(v) According to
section 44(1)(b), a prospectus or statement in lieu of prospectus in the
prescribed form (schedule IV) must be filed with the registrar with 30 days
from the passing of the special Resolution.
(vi) Every
prospectus files under sub-section (1) should state the matter specified in
part I or schedule II, and sets out the reports specified in part II of that
schedule [section 44(2)(a)]
(vii) The
statement in lieu of prospectus filed, should be in the form and contain
particular set out in Schedule IV [section 44(2)(b)]
(viii)
If the company and every
officer of the company makes a default, than they shall be punishable with a
fine, which may extend to Rs. 5000 for every day during which the default
continues.
(ix) If any untrue
statement is filed in the prospectus or statement in lieu of prospectus, than
the person authorized shall be punishable with fine or Rs. 50,000 with
imprisonment upto 2 years or both.
Conversion
of Public Company into Private Company
The Company Act does not allow a Public Company to turn itself
into a private company, but it neither prohibits such conversion. The
conversion can take place in following ways:-
1. A Public
company can be converted into a private company by altering the articles,
incorporating the three restrictions, mentioned in section 3(i)(iii).
2. Approval of
the central government is necessary for converting a Public company into a
private company.
3. Special
resolution is to be passed within 30 days, after obtaining the approval of the
Central Government for conversion.
4. The word
private Ltd. is used. The conversion
of a public company into a private company does not affect the identity of the
company.
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