An Articles of Association (AoA) of a Private Company limits the transfer of shares. A private company is forbidden from inviting the public to subscribe for its shares. On the other hand, a public company does not have any such restrictions regarding the invitation to the public to subscribe for its shares or the transferability of its shares. There are benefits and limitations to both companies. We will discuss in this article how to convert a private company into a public company when the applicant desires to change the class of company. This article discusses the relevant provisions of the Companies Act, 2013 for conversion of private company into a public company.
How are private and public companies different?
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It is important to note that the Companies Act, 2013 provides different types of classes of companies, among which are the most popular, namely the Private and Public Companies. These companies possess the following requisites:
Private Company
According to Section 2(68) of the Companies Act, 2013, a Private Company is a company that has articles of association (AoA) that restricts the transferability of its shares and prevents the general public from purchasing its shares. The main difference between a Private Company and a Public Company is that this is one of the defining characteristics of a Private Company.
There is a limit of 200 members in private companies (except for one-person companies). This limit excludes any employees who have been with the company before. The private company has many privileges and exemptions, because the law does not allow the shareholders to transfer their shares freely, and since the members’ interests are limited, the law has granted these corporations several privileges and exemptions.
Public Company
It defines a public company under Section 2(71) of the Companies Act, 2013. In its initial public offering, a Public Limited Company sells all or part of itself to the public. This is not a private company where the shares cannot be transferred to the general public. In order to raise capital for expansion, public companies can trade in their shares on an open market to the general public.
In the process of converting a private company to a public company, what are the key considerations?
In order to convert a private company into a public company, we need to take into account certain rules and regulations that must be followed. There are a few key points that need to be taken into account:
- During the process of converting the company from a private company to a public company, the members of the company have to approve the conversion.
- An amendment should be made to the name clause in the Memorandum of Association (MoA) to remove the word private.
- Companies Act, 2013 Section 3(1) specifies that the number of members of the company shall be 7 before conversion.
- In accordance with Section 149(1) of the Companies Act, 2013, the number of directors from two to three will be increased.
- In order to maintain compliance with the requirement, all annual returns or financial statements should be filed with the Registrar of Companies (RoC).
- All matured deposits must be paid by the Company in accordance with Rule 29(1) of the Companies (Incorporation) Rules, 2014.
- If you would like to modify the Permanent Account Number (PAN) of a company, you should submit an application.
- It is necessary to provide information to the Federal Government, where the company is registered, regarding its activities.
- In order to comply with the requirements of a Private Limited Company, the Articles of Association (AoA) should be amended.
- Moreover, the Conversion should be approved by the Central Government as well.
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