How a private company can be converted into a public company and vice-versa ?

A private company can be converted into a public company by the following methods which are described as follows:

Conversion by Choice

A private company may deliberately choose to become a public company. If a private company deletes from its articles the requirement of section 3(i) (iii) by passing a special resolution, the company will cease to be a private company from the date of the alteration of the articles.

When a private company chooses to become a public company it will have to comply with all the provisions of the Companies Act applicable to a public company. Within 30 days of its becoming a public company, it shall file with the Registrar a prospectus or a statement in lieu of prospectus.

Conversion by Default

A private company is entitled to certain privileges and exemptions. It can enjoy those privileges as long as it complies with the requirement of its definition as given in section 3(i)(iii). Where any default is made in complying with these provisions the company losses the privileges and the exemptions and the provision of the Act apply to the company as if it were not a private company. [sec.43]

Conversion by the Operation of Law

Private companies are exempted from the operation of several sections of the Act and enjoy certain privileges principally on the ground that they are family concerns in which the public is not directly interested. As public money is invested in such companies, there is no reason for treating such company as private companies. The law tries to tackle the problem in two ways. Firstly where a private company is a subsidiary of a public company, it is dealt with as a public company for all purpose of the Act. Secondly, the companies Amendment Act 1960, has introduced a new section 43-A which provide that private companies which employ public money to an appreciable extent should be subject to the same restriction and limitation as to disclosure and otherwise as applied to public companies. [sec.43-A]

This section provides that a private company will become a public company if 25% or more of its paid of share capital is held by one or more bodies corporate. In calculating the above percentage the shares held by a Bank as trustees or executor of a deceased shareholder shall not be taken into account. In the following cases private company will not be treated as a public company:

(a) If the entire paid of share capital is held by another single private company or by one or more bodies corporate incorporated outside India.

(b) If the shares are held by one or more of the body corporate incorporated outside India, which is incorporate in India would have been private companies provided that the central government by order so directs.

(c) Where the share holding company is itself a private company and no other company holds share in any such company and the total number of shareholders in all these companies including the private company does not exceed fifty.

Section 43-A has been further amended by the companies Amendment Act 1974, by adding subsection (IA) and (IB). Section 43-A (I-A) provides that where the average annual turnover is not less than rupees one crore for three consecutive financial year the private company will become a public company after the expiry of three month from the period at the close of which the account show that amount turnover.

According to section 43-A (I-B) where a private company holds not less than 25 percent of the paid up share capital of a public company it will become a public company from the date it holds such share.

Where a private company has become a public company by reason of the foregoing provision, it may include in its articles provision relating to matter specified in section 3(i) (iii). The number of the members may also be at any time reduced below seven. Such a private company shall within three months from the date on which it has become a public company inform the register that it has become a public company. On such information the registrar shall delete the word ‘private’ before the word ‘limited’ and shall also make necessary amendment in the document of the company in case of non-compliance, the company and very officer who is in default, shall be liable to a fine up to Rs. 500 for each day of default.

A private company which has become a public company by virtue of these provisions shall continue to be so until it has with the approval of the central Government and in accordance with the provisions of the Act again become a private company.

Conversion of public company into private company

A public company may be converted into a private company by altering the articles incorporating the three restriction mentioned in section 3(i) (iii). Such alternation of articles will be made by a special resolution and approval of the central Government is necessary, for such alteration. A copy of the special resolution has to be filed with the register within 30 days and when the approval of the central Government for conversion of a public company in to private company is obtained a copy of such approval shall also be filed within one month. A printed copy of the articles as altered shall be filed by the company with the Register within one month of the date of the receipt of the order of approval.