Presentation on Privileges to Private Companies Prepared by:Mohit Jaiswal

Brief introduction
As a public company has large numbers of investors, such companies protects shareholders interests by framing and following strict rules. But in a private company, the membership is usually restricted to the promoters, their friends and relatives. It raises its capital privately from a limited number of members. The members of the public are not substantially interested in such companies. Therefore many of the provisions of the Companies Act are not applicable to a private company. Thus, a private company is granted a number of exemptions or privileges.

Section - I
Privileges For a private company
over public company

Privileges For a private

company over public company
1.Paid-up capital: A Private Company needs to have Minimum paid-up capital of Rs. 1 lakh. 2.Number of Members: Two members can form a private company. 3.Minimum Subscription: A private company need not wait till the receipt of minimum subscription. It can allot shares as soon as it receives its subscription. 4.Commencement of Business: Immediately after incorporation a Private Company can start its business operation.

5.Subsequent Issue of Shares: A private company can issue shares to outsiders and need not offer its shares first to its existing share holders. 6.Prospectus: A private company need not issue a prospectus or file with the Registrar of companies a statement in lieu of prospectus before allotment of its shares. 7.Quorum: To form the quorum only two members who are personally present at the general meeting of shareholders required, unless otherwise provided in the articles.

08.Statutory Meeting and report: There is no need of holding statutory meeting or file a report with the Registrar of Companies in the case of a private company. 09. Provisions Regarding Directors: Directors need not possess qualifying shares. A private company may have a minimum two directors. They need not file their consent to act as such with the registrar. 10. Managerial Remuneration: There is no restriction on the total managerial remuneration in private company as against the 11 percent of net profit applicable to a Public company.

Section - II
Conversion of a Public Company
into a Private Company

Conversion of Public company into Private company

Under the Companies Act (Section 31) , all public companies, whether originally incorporated as a public limited company or at any time converted into a public limited company (under section 44 of the Act), may be converted into a private limited company, if the members so desire. The essential conditions for such a conversion are: The company must not be listed on any recognized stock exchange. In case of a listed company, it will have to wait for at least one year after its delisting.

Shareholders approval by special resolution for alteration of Articles of Association for incorporation of the definition of a private company. The Articles shall be suitably amended to include the basic restrictions applicable on a private company and other provisions necessary thereto. No resolution amending the Articles, which has the effect of converting a public company into a private company, shall be effective unless it has been approved by the Central Government.

After the alteration has been approved, a printed copy of the Article shall be filed with the Registrar of Companies within one month of the date of receipt of the order of approval. The name of the company shall be amended to include the word 'private' on all its documents.

Procedure for the Conversion

Convene a Board meeting for consideration of the proposal of conversion of the company into a private company.

Prepare the proposal for alteration of Articles of Association or prepare a new set of Articles of Association meeting the requirements of a private limited company. A certified copy of special resolution, explanatory statement and Memorandum and Articles (before and after alteration) is filed with FORM-23.

Pay the requisite application fee.

Publish a newspaper notice in two widely circulated languages of the State, stating where the Regd. Office of the company is situated.
Get a no objection letter from major unsecured creditors and all secured creditors.

Apply to the Central Government in e-Form 1B.

Documents to be attached with application to the Central Government

Notice of extra-ordinary general meeting. Minutes of extra-ordinary general meeting. Copy of special resolution. Copy of newspaper advertisement. Affidavit that the company is not listed on any stock exchange. Reference number, date of passing and date of filing the e-Form 23. Payment of requisite application fee.

One copies each of the annual reports for the last three financial years. Copy of the last annual return. Altered Memorandum and Articles of Association. No objection letters from major unsecured and all secured creditors Reasons for conversion. Terms of appointment of all managerial personnel. Power of attorney in favor of the authorized representative.

If the Govt approves the application, he refers it to Technical Section and Prosecution Section for their report
The Technical Section reports on whether the relevant eForm23 and the last years annual report and annual return has been filed and passed/taken on record. The Prosecution Section reports on whether any complaint is pending from anybody against the company. If during the scrutiny any adverse point arises, that has to be looked into and the authorized representative should take the initiative to make good the default or defect.

Technical Section
Whether the interest of the public and particularly that of the creditors will be adversely affected? Whether the company is listed? Capital contribution by members. Whether e-Form 23 has been passed and taken on record? Whether the reasons for conversion are just and sufficient?

Prosecution Section
How many members voted for the resolution? Whether any complaint against the company is pending? Whether any show cause letter has been issued to the company or its Directors? If there is any objection from members and creditors.

Issue of fresh Certificate of Incorporation

If the reports are satisfactory, the central govt. will issue a letter granting its approval for conversion of a public company into a private company. The concerned ROC then issues fresh certificate of incorporation consequent upon change of name after conversion of the company from Public Company to 'Private Company.

The Last Section - III Section

Conversion of
Private Company into a Public Company

Conversion of a Private Company into a Public Company

The Companies Act (Sections 43, 43A, 44), contains two procedures for such a conversion.
Conversion by default

Conversion by an act of
Volition

I.

Conversion by default

The Companies (Amendment) Act, 2000, stipulates that the Articles of a private company shall provide for four restrictions:1. Restrictions on transfer of shares; 2. Restrictions on invitation to public to subscribe to the shares or debentures of the company; 3. Restrictions on the maximum number of members which should not exceed 50 excluding members who are employees or exemployees of the company; and 4. Prohibition on any invitation or acceptance of deposits from persons other than its members, directors or their relatives

If default is made by any private company in complying with any of the above restrictions, such a private company shall cease to be entitled to the privileges and exemptions conferred on a private company by the Act and all the provisions which are applicable to a public company shall apply to such a private company. However, it is provided that the company or any person interested may file a petition before the Central Government along with the requisite fee, to grant relief in committing the default. The petition shall be accompanied by the following documents:1. Copy of the Memorandum and Articles of Association; 2. Copy of the documents showing that the default has been committed in complying with the conditions laid down under the Act; 3. Affidavit verifying the petition; 4. Bank draft evidencing the payment of requisite application fee; 5. Memorandum of appearance with copy of the Board Resolution or the executed Vakalatnama, as the case may be.

The Central Government on being satisfied that the failure to comply with the conditions under the Act was accidental or due to inadvertence or due to some other sufficient cause, or that on other grounds it is just and equitable to grant relief, may order that the company or any other person interested be relieved from the consequences of default, on such terms and conditions as seem to the court just and expedient. From the date of the order, the company will again be entitled to all the privileges and exemptions available to a private company. But during the intervening period, the provisions of the Act as are applicable to a public company shall apply.

II.Conversion by an act of Volition

A private company may get itself converted into a public company voluntarily by following the procedure for conversion:1. Convene a Board meeting and decide the time, place and agenda for convening a general meeting to alter the Articles of Association and consequently, the name, by Special Resolutions. 2. Send notice for the general meeting proposing the Special Resolutions along with suitable Explanatory Statements. 3. If the quorum of two members personally present exists, then convene the general meeting and pass the Special Resolution to the following effect:-

.To delete those articles which are required to be included in the articles of a private company only. Such other articles which do not apply to a public company should be deleted and those which apply should be inserted. .To raise the paid-up capital to minimum Rs. 5 lakhs. In case the authorized capital is less than Rs. 5 lakhs than it shall also require to be increased. .To raise the capital from public. 4. File either the prospectus in the Form as prescribed under Schedule II or the Statement in lieu of prospectus in the Form as prescribed under Schedule IV within thirty days of passing of the above special resolutions.

5. File the Special Resolutions passed and the Explanatory Statements with the concerned Registrar of Companies (ROC) in e-Form 32 within thirty days of their passing, along with the requisite fee.

6. Apply to the concerned ROC for the issue of a fresh certificate of incorporation in the changed name i.e. the existing name with the word "private" deleted. On issue of such a certificate, the change of name of the converted company shall be final and complete.
7.If the company has less than three directors, then increase the number of directors to at least three. If the company has less then seven members, then increase them to at least seven.

8. Although the company becomes a public company as soon as the Special Resolution to change the Articles to make it a public company is passed, the change in its name becomes effective only on the issue of the fresh Certificate of Incorporation by the concerned Registrar of Companies (ROC) in the changed name. 9.A statutory meeting must be held if such a conversion is before six months of the incorporation of the company. 10. When a private company is converted into a public company, it is not required to obtain a certificate of commencement of business.

Any Queries