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Converting a private limited company to a public limited company is a significant step towards expanding the business and increasing access to capital. A public limited company can issue shares to the public, which means it can raise funds from a large number of investors. However, this process requires compliance with various legal and regulatory requirements, such as obtaining the approval of shareholders and the Registrar of Companies (ROC), and making changes to the Memorandum and Articles of Association. It is recommended to seek professional guidance from experts to ensure a smooth and efficient conversion of private company into public company.
Let us have a brief understanding of what is Private limited company and public limited company.
A company that is privately held for small businesses. The liability of the members of a private limited company is restricted to the number of shares respectively held by them. The shares of a private limited company can’t be traded.
A company whose shares are traded on a stock exchange and can be purchased and traded by anyone. It is also called a publicly held company.A public limited company can offer it’s shared to general public.The Company’s Act 2013 also defines a public limited company as one that has limited liability and offers company shares to the public. Anyone can acquire the stocks of such a company either through stock-market trading or via IPOs ( Initial Public Offerings).
Quick Share Transfer
Shareholders of a public limited company can transfer their shares with great ease. All they need to do is file the share transfer form and hand over the share certificate to the buyer. The process of transferring a share to another business structure is very tedious.
Raise Capital
The advantage of the public limited structure is that you can leverage it to raise capital from the general public through shares. This would, however, require listing on a stock exchange. All public limited companies can issue fixed deposits, debentures, convertible debentures to the general public.
Greater Credibility
Public limited companies need to disclose their audited statement of accounts, inform the regulatory bodies of any structural change, and hold annual general body meetings for all shareholders. These compliance procedures bring a great deal of credibility to the organization.
A company already enrolled in a class may change itself as a company of another class by modification of memorandum and articles of the company. An application in this regard is required to be made to the registrar. The registrar after being convinced that all steps comply with the requirements, then it shall close the former registration of the company. After registering the documents related to the conversion, the Registrar shall issue a certificate of incorporation. The transformation of a company shall not assume any debt, claim, liabilities, and obligations. Such debt, liabilities, and contracts may be enforced and executed as if there is no such exchange.
The Companies Act regulates the conversion of a private company into a public company. The specifics of this process, including the applicable sections, are outlined in the Incorporation Rules.
A public limited company has several obligations to fulfill, including
Annual General Meeting: The company must hold an annual general meeting every year, where the financial statements of the company are presented to the shareholders
Board Meetings: The board of directors of the company must hold meetings at regular intervals to discuss and make decisions on various matters related to the company
Shareholder Meetings: The company must hold shareholder meetings to discuss and make decisions on matters such as changes to the Memorandum and Articles of Association, appointment and removal of directors, and other significant matters
Financial Reporting: The company must prepare and file its financial statements with the Registrar of Companies and other regulatory authorities as per the prescribed timelines
Corporate Governance: The company must comply with various corporate governance requirements such as appointment of independent directors, constitution of audit committees, and other committees as per the applicable laws.
The time taken for the conversion of a private limited company to a public limited company can vary depending on various factors such as the efficiency of the company and the Registrar of Companies, the complexity of the process, and the completeness of the documentation submitted. Generally, the entire process of conversion can take anywhere between 2 to 4 weeks, provided all the required documents are submitted, and the necessary approvals are obtained in a timely manner.
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