PRIVATE LIMITED COMPANY
Private Limited Company is the most popular and widespread type of legal entity in India. In-order to register a private limited company, a minimum of two directors and two shareholders are needed. A corporate legal entity can only be a shareholder, while a natural person can be both, a shareholder, and a director. The Ministry of Corporate Affairs, Companies Act, 2013 and the Companies Incorporation Rules, 2014 govern the registration of a Private Limited Company. Unique privileges of a private limited company include the ability to raise equity funds, limited liability protection to shareholders and perpetuity of existence make it most desirable type of business entity for small to medium sizes, professionally managed corporations. Additionally, Foreign Corporate Entities or NRIs and foreign nationals are permitted to be Shareholders and/or Directors of a company with Foreign Direct Investments making it a suitable choice for foreign promoters.
PUBLIC LIMITED COMPANY
A Public Limited Company provides limited liability to its management and owners. Being a Public Company will allow a firm to sell shares to investors which is advantageous in raising capital. A minimum of three directors are required in establishing a Public Limited Company. In comparison to Private Limited Company, Public limited company has several more stringent regulatory requirements with most of the features of a Private Limited Company. Public Limited Companies are the type of companies where there is no limit for capacity for maximum number of members however the minimum number of members is seven. Identifying marks of a Public Limited Company are number of members, shares, name, management, number, formation, meetings, directors, etc., A Public Limited Company has all the benefits of Private Limited Company and ability to have any number of members, more transparency and ease in transfer of shareholding.
Advantages of registering a Limited Company
Separate Legal Entity
A Private Limited Company is a separate legal entity and authorized person established via Companies Act. A such, the company has a scope of legal attributes including hiring of employees, opening a bank account, obtaining licenses, or taking on equity and other privileges as an independent corporate entity. The risk is awarded to the company protecting the members of the company from the company’s liabilities of the creditors of the company.
In a company, ownership of the business can be easily transferred by simply transferring shares. The consent of the other shareholders may be required to effect share transfers in a private limited company. The process of filing, signing and transfer of share certificates and share transfer form are adequate to transfer ownership of a company.
Shareholders cannot make a claim upon the property of a company as far as the company is an ongoing consent. A company being an authorized person can own, obtain, sell, and enjoy property, in its own name.
A company being a separate legal person, is unaltered by the departure or demise of any member but will continue to exist regardless of the modifications in the membership. A company has ‘perpetual succession’ which means, it remains to be in constant existence until it is legally dissolved.
Financial Institutions and Banks prefer to provide substantial financial assistance to a company rather than to proprietary concerns or partnership firms. A company can issue debentures - unsecured as well as secured, and also accept deposits from the public, etc., A company enjoys better avenues for borrowing of funds.
Conversion from Private Limited to Public Limited Company
By having modifications in MOA and AOA, a company which is already engaged in a class can transform to other class. An application must be made to the Registrar pertaining to this regard. Former registration of the company shall be closed when it complies with the required steps. Registrar will issue a certificate of incorporation when all documents concerned with conversion are registered.
The modifications of articles included in private company should be transformed in an effective manner which will no longer include the constraints needed in the articles included with private limited company. i.e. number of directors, transfer of shares, quorum of the general meeting, minimum and maximum number of members, etc., A company ceases to be a private company from the date of mentioned alternation.
Any claim, obligations, debts and liabilities are not assumed by the company for transformation. Such contracts, liabilities and debts can be accomplished and implemented in regards with no such exchange.
Procedure for Conversion of a Private Company into a Public Company
1. Calling of Board Meeting: To discuss and to get in-principal approval of Directors for conversion of private company into a public company by modifying the AOA and fix date, time and place for holding general meeting to get approval of shareholders for conversion of a Private company into a Public company.
2. Issue of Notice of General Meeting: Issue Notice of the General meeting to all Members, Directors and the Auditors of the company in accordance with the provisions of Section 101 of the Companies Act, 2013 and Secretarial Standards -2.
3. Holding of General Meeting: Along with the modifications in AOA under section 14, by passing the required Special resolution in order to get the shareholder’s approval for conversion of private limited company into public limited company. Accordingly, with the provisions of Section 101 of the Companies Act, 2013 and Secretarial Standards-2, the Holding of General Meeting will be scheduled with this regard.
4. Filling of e-Forms: For alteration in Article of Association for conversion of private Company into a public company under section 14, the following E-forms shall be filed with concerned Registrar of Companies at varied stages as per the details mentioned below:
A. E-form MGT-14
For filing special resolution with ROC, passed for conversion of Private Company into a Public company.
A Special resolution needs to be passed under section 14, in case of modification of AOA for the conversion of Private Limited Company into a Public Limited Company. On that account, as per section 117(3)(a), special resolution copy is needed to be filed with the concerned ROC who directs the filing of E-form MGT-14 within 30 days of special resolution passage in general meeting.
Attachments of E-form MGT-14:
1) Altered memorandum of association;
2) Altered articles of association;
3) Certified true copy of special resolution;
4) Certified true copy of board resolution may be attached as an optional attachment;
5) Members’ Resolution along with copy of explanatory statement under section 102.
B. E-form INC-27
Application for conversion of a private company into a public company
The application shall be filed in E-form No. INC-27 with fee, as per the Rule 33 of Companies (Incorporation) Rules, 2014, for influencing the conversion of private limited company into public limited company and vice versa. Correspondingly, an application for conversion of a private limited company into a public limited company needs to be filed in E-form INC-27 to the ROC consent, with prescribed fee and required annexures.
Attachments of E-form INC-27:
1) Altered articles of association
2) Minutes of the member are meeting where approval was given for conversion and altered articles of association
3) Other information if any can be provided as an optional attachment(s)
4) Certified true copy of board resolution may be attached as an optional attachment.
On successful application by the company, the Registrar, in accordance of the provisions of Chapter II of the Companies Act, 2013, shall close the former registration of the company and by registering the documents, issue a certificate of incorporation in the same manner as its first registration.
Q: Documents required for conversion.
A: Copy of PAN Card, Aadhar card, Passport size photograph of the Directors and proof of address of the office and other documents if required for the conversion
Q: What are the minimum requirements of conversion?
A: Following are the minimum requirements for converting Proprietorship to Private Limited:
• Minimum three number of directors with DIN (for all the directors) and seven shareholder.
• Rs. 5 lakhs as minimum paid up share capital.