Definitions of a Private Limited Company and a Public Limited Company
Private Limited Company
Small Businesses generally choose a Private Limited Company structure for the business. The liability of the members of a private limited company is limited to the number of shares they own respectively. The trading of these shares is not allowed.
Public Limited Company
The shares of a Public Limited Company are listed on the stock exchange, and their trading is accepted. Everyone is allowed to purchase and trade them. As the name suggests, a public limited company offers its company shares to the general public for purchase. Its definition is “A company that has limited liability and offers company shares to the public” under the Company’s Act 2013. Stock-market trading or IPOs ( Initial Public Offerings) can be used to obtain its stocks.
Benefits of a Public Limited Company
Quick Share Transfer
Shareholders of public limited companies are able to transfer their shares very easily. A simple share transfer form must be filled out, and the certificate must be handed over to the buyer. It is very tedious to transfer a share to another business structure.
Raise Capital
Public limited companies are able to raise capital through shares from the general public, which is an advantage. However, this would require listing the company on a stock exchange. All public limited companies are allowed issue fixed deposits, debentures, and convertible debentures to the general public.
Greater Credibility
An audited statement of accounts must be disclosed, any structural changes must be reported to regulatory bodies, and annual general meetings must be held in a Public Limited Company. These compliances benefit the organization with increased credibility.
What is the process of converting a private limited to a public limited company?
By amending the company’s memorandum and articles, a company already enrolled in one class can become one of another. An application in this regard must be made to the Registrar. Once the Registrar is convinced that all steps comply with the requirements, then he shall close the former registration of the company. When the documents related to the conversion are registered, then the Registrar shall issue a certificate of incorporation. The transformation of a company will not assume any debt, claim, liability, or obligation. Such debt, liabilities, and contracts may be enforced and executed as if there is no such exchange.
- Calling of Board Meeting: In order to call a meeting of the Board of Directors, a notice must be issued under section 173(3) of the Companies Act, 2013. The main objective of this Board meeting would be:
- To alter the Articles of Association, Pass a board resolution to get the consent of directors for the conversion to a public company from a private limited company.
- Pass a Special resolution to get the approval of shareholders by fixing the date, time and place for holding an Extraordinary General meeting (EGM). The purpose of the meeting should be to convert a private company into a public company.
- As per section 102(1) of the Companies Act, 2013, the agenda and statement must be added to the Notice of General Meeting to approve the Notice of EGM
- It is recommended by the board under article 1(c) to issue a Notice of the Extra-ordinary General meeting (EGM) by the director or company secretary
- If the number of directors is less than three, then pass a resolution for an increase in the number of directors.
- Issue of EGM Notice: In order to invite the members, directors and affiliates, issue a notice of the Extraordinary General Meeting (EGM) as per the requirements of Section 101 of the Companies Act, 2013.
- The holding of EGM meeting: The company holds the Extraordinary General Meeting on the due date to gain shareholder support for the conversion of the private company into a public company and transfers the required Special Resolution, along with the modification of the articles of association, under section 14 of the agreement.
- Registrar of Company(ROC) filing: Fill out the required forms concerning the Registrar of Companies to modify the Article of Association for the conversion of a public limited company under section 14. The form will be filled as per the details mentioned :
- An E-form is used to file a special resolution with the ROC for the conversion of a private company into a public company.
- An article of association modification for conversion to a public company requires that a special resolution be passed under section 14. According to section 117(3)(a), within 30 days of passing the resolution in the EGM, a copy of this special resolution should be filed to the ROC through the filing of form MGT.14.
- As per Rule 33 of the Companies (Incorporation) Rules, 2014, an application for converting a private company into a public company must be submitted in Form No. INC-27 with the required fee.
- As per section 18, the ROC must satisfy itself that the company complies with the necessary provisions for registering a company once the required documents are received and verified the documents for the conversion of a private limited company into a public limited company. After this stage, the ROC (Registrar of Companies) will enclose the previous registration and issue a fresh certificate of incorporation and register the documents presented.
