Why convert a public company into a private company?

There are several reasons why a company may want to convert from a public company to a private company, including:

• To avoid the costs and complexities of being a publicly traded company

• To reduce regulatory burdens and compliance for private limited company requirements

• To increase flexibility and autonomy in decision-making

• To protect the company from hostile takeovers or unwanted investor scrutiny

• To allow the company to focus on long-term growth and strategy rather than short-term profits

Steps involved in converting a public company into a private company:

• Board approval: The company's board of directors must approve the proposed conversion of a Public Company into a Private Company and alterations to the Memorandum of Association (MoA) and Articles of Association (AoA) of the company, subject to members’ approval.

• Shareholder approval: The company must obtain approval from its shareholders, usually through a special resolution, for the said conversion and alteration to the MoA and AoA.

• Filing with the Registrar of Companies: The company must file the notice of the shareholder’s meeting along with the explanatory statement, certified copies of the special resolutions passed, and the altered MoA and AoA with Registrar of Companies indicating its intention to convert from a public company to a private company, in e-form MGT-14.

• Newspaper Advertisement and Notice: At least 21 days before the date of applying Form RD-1 (i.e. The gap between the filing of the application and newspaper advertisement should be a minimum of 21 days), do the following:

            - Advertise in Form INC-25A, in English and the regional language of the state in which the registered office of the Company is situated;

            - Dispatch individual notice to each creditor;

           - Registrar of Companies (ROC), Dispatch notice to Regional Director (RD), and any other regulatory authority such as RBI, IRDAI, in case applicable, etc.

• Application to Regional Director: An application is to be made to the Regional Director within 60 days of passing of the special resolutions, accompanied by required documents including board resolution authorizing such conversion, altered AoA and MoA, minutes of the general meeting, and list of creditors and debenture holders (if any). The order as received from RD shall be filed with ROC within 15 days from the date of receipt of the order in Form INC-28.

• Name change: The company's name must be changed to reflect its new status as a private company.

• Obtaining a new Certificate of Incorporation: The company must obtain a new Certificate of Incorporation from the ROC, which will reflect its new status as a feature of private company.

• Notifying the stock exchange: If the company is listed on a stock exchange, it must notify the exchange of its conversion to a private company.

• Delisting from the stock exchange: The company must delist from the stock exchange and remove its shares from trading.

Challenges and considerations:

• The company may face opposition from the Process to Transfer Shares in a Private Limited Company or other stakeholders.

• The company's valuation and financial performance may be affected by the conversion.

• The company may need to restructure its debt and equity financing.

Timeline for conversion in short

Documents to be filed with the Application to the Regional Director

• List of dates and events, setting out the date of the board meeting and extraordinary general meeting in which resolution for conversion was passed.

• Altered MOA and AOA.

• Certified copy of minutes of extraordinary general meeting.

• Power of Attorney or Board Resolution authorizing to apply.

• Separate Declaration concerning the following by KMP or any of the Directors:

         1) The total number of members does not exceed 200.

         2) No deposit has been accepted by the Company till date;

        3) We have complied with all applicable provisions of the Act, including sections 73 to 76A, 177, 178, 185, 186, and 188, and the related rules.

       4) That the Company was never listed on any Stock Exchange and if it was so listed, all necessary procedures of delisting have been complied with Compliance with all necessary laws.

       5)That no inquiry, investigation, or inspection is going on against the Company.

• List of creditors with payments due within 30 days, including their names, addresses, the reason for the debt, and the total amount owed.Further, an affidavit verifying the list of creditors shall also be attached.

• Copy of newspaper advertisement.

Benefits of Conversion of a Public Company into a Private Company

• Increased Flexibility: Private companies have more flexibility in decision-making, as they are not bound by the same level of regulatory compliance and disclosure requirements as public companies.

• Cost Savings: Private companies can save money on costs associated with being the Conversion of a Public Company into a Private Company, such as auditing, legal, and investor relations expenses.

• Improved Confidentiality: Private companies can maintain confidentiality of their business strategies, financial information, and trade secrets, which can be a competitive Advantage and Disadvantage of LLP.

• Long-term Focus: Private companies can focus on long-term growth and strategy, rather than being driven by short-term profit expectations of public shareholders.

• Family or Owner Control: Conversion to a private company can allow family members or owners to regain control and decision-making power.

• Reduced Regulatory Burden: Private companies are subject to fewer regulatory requirements and filings, reducing the administrative burden on the company.

• Enhanced Ability to Make Strategic Decisions: Private companies can make strategic decisions quickly, without needing to consider the potential impact on public shareholders.

• Protection from Hostile Takeovers: Private companies are less vulnerable to hostile takeovers, as there is no public market for their shares.

• Improved Employee Morale: Private companies can focus on employee morale and retention, rather than being driven by short-term profit expectations.

• Tax Benefits: Private companies may be eligible for certain tax benefits, private Limited Company such as pass-through taxation, which can reduce their tax liability.

Legal Provisions Regarding Conversion from Public To Private Company

• Section 13 of the Companies Act, 2013: A public company can be converted into a private company by ensuring that there is an enabling clause in its Memorandum authorizing such conversion. If the MoA does not have such a clause, then altering its memorandum of association is mandatory.

• Section 14 of the Companies Act, 2013: A public company can be converted into a private company by altering its articles of association and obtaining approval from the Central Government.

• Section 18 of the Companies Act, 2013: The company must pass a special resolution in a general meeting to convert into a private company.

• Section 61 of the Companies Act, 2013: The company must file an application with the Registrar of Companies (ROC) for conversion, along with the required documents and fees.

Conclusion:

• Converting a public company into a private company can be a complex and challenging process.

• It's essential to carefully consider the reasons for the conversion of OPC into Private Company the potential benefits and drawbacks, and the legal and regulatory requirements involved.

• If you're considering converting your public company into a private company, it's recommended that you seek the advice of a qualified legal and financial professional.

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