SME founders planning for SME IPO, the first requirement is to get converted into a public limited company. The article explains a stepwise guide on how to convert from a private into a public limited company.
Public limited companies have certain advantages over a private company and the most important one is public limited companies can go for IPO by offering shares to the public. Public companies have no restriction on transferability of shares and they can have any number of shareholders.
Is conversion to a Public Limited Company mandatory to bring an SME IPO?
The first question that comes to your mind is why the conversion is important or if is it necessary for SMEs to convert themselves into a public limited company. Clearly yes, let’s look at the reasons why:
- Preparing to go public: Private limited companies cannot list their shares on the stock exchange, which means they cannot bring an IPO. SMEs that want to raise money from the public via an IPO must convert from a Pvt Ltd to a Public Ltd. A public company is authorized to issue shares and debentures to the public, which is not an option for private companies.
- Number of shareholders: Private companies have a maximum of 200 members or shareholders. However, there are no restrictions on the maximum number of members or shareholders for public companies. In an IPO, small and medium-sized listed companies (SMEs) can therefore allocate shares to a maximum number of bidders without any restriction.
Get Ready to Convert into a Public Limited Company
There are some prerequisites to prepare for the conversion into a public limited company. Here is an indicative list of the most important requirements for the conversion:
- Minimum paid-up Capital: The minimum paid-up capital must be increased to Rs 5 lakhs to become a public limited company, whereas it is only 1 lakh for a private limited company.
- Minimum number of Shareholders: A private company can be formed by only two members, but to get converted into a public limited company, your company must have at least 7 shareholders.
- Number of Directors: A minimum of 3 directors are required for a public limited company, while private companies can have only 2 directors.
How to convert a Private Limited Company to Public Limited Company?
Here is the step-by-step process explained to convert from a private into a public limited company:
Step 1: Call the Board Meeting
The company must issue a notice to call a board meeting of directors. The notice must be distributed at least 7 days before the board meeting. The agenda of the meeting shall include:
- Discussion of the reasons for the conversion into a public limited company.
- Pass board resolution to convert the company into a public limited company.
- Discussion of the required amendments in the Memorandum of Association (MoA) and the Articles of Association (AoA) for the conversion.
- Pass a board resolution to increase the number of directors, as a public limited company requires at least 3 directors.
- Approval of the convening of an Extraordinary General Meeting (EGM). The date, time, and place of the EGM also need to be fixed.
Step 2: Conduct EGM or General Meeting
After the board meeting, the company must issue a notice to conduct a general meeting. The notice must be circulated at least 21 days before the meeting. The agenda of the general meeting includes:
- Pass a special resolution to approve the conversion into a Public Limited company.
- Pass a special resolution to change the name clause in the MoA by removing the word “Private”
- Pass a special resolution to delete other clauses of MoA and AoA that apply to a private limited company.
- A special resolution can be passed if at least 75% of the votes are in favor of the proposed conversion.
Step 3: File to RoC
According to section 117 of the Companies Act, whenever a company passes a resolution in its board meeting, it must be filed to the RoC (Registrar of Companies) within 30 days.
File Form MGT 14: The company has to file E-form MGT 14 to RoC within 30 days to communicate about the respective resolutions along with the following documents:
- Copy of notice issued for the EGM.
- Certified copies of special resolution passed in the general meeting.
- Copy of the amended MoA and AoA.
- Explanatory statement.
- If the EGM was called at short notice, a copy of the consent was given by at least 95% of members.
File E-Form INC-27: Form INC – 27 is an application form filled by the company to get converted from Pvt to a Public Limited company. E-form INC- 27 must be filed within a maximum of 15 days of the day when the special resolution has been passed in the EGM. The company must file the e-form with the fee and enclose supporting documents below:
- Copy of the resolutions passed in the general meeting.
- Copy of altered MoA.
- Copy of altered AoA.
- Meeting minutes.
- Details of the company directors and promoters.
Step 4: Obtain RoC approval
Enclose the form along with supporting documents, all the documents will be scrutinized for verification. RoC may seek clarification if required. Once the documents are verified, the registrar will issue a new certification of incorporation as a public limited company.
Documents required for Incorporation of a Public Limited Company
Walk through the complete document checklist required for the registration or incorporation as a public limited company. A company must submit all the documents to the RoC:
For the Company Directors and Shareholders:
- PAN card of all the directors and shareholders of the company.
- Copy of ID Proof and address proof (Aadhar card and voter ID) of all the directors and shareholders.
- Latest bank statement (not older than 2 months) of all the directors and shareholders.
- Latest passport size photo of all directors and shareholders.
- Digital Signature Certificate (DSC) of all the company directors.
- Director Identification Number (DIN) of all the directors of the company.
For the company’s Registered Office:
- Utility bill not older than 2 months of the registered office of the company.
- NoC (No Objection Certificate) from the owner of the company’s registered office.
- Rent agreement.
Company-specific Documents:
- Memorandum of Association.
- Articles of Association.
- Certified copies of the latest audited financial statements.
Once all the documents are submitted and verified, the registrar will issue a certificate of incorporation as a public limited company.
Post-Conversion Compliance Requirements for Public Limited Companies
Once you receive the title of “Public Limited Company (PLC)”, you have to comply with various rules and regulations. Here are the post-conversion compliance requirements:
- Apply for a new PAN card as a public limited company.
- All the official documents, letterheads, contracts, and agreements must have new names printed.
- Business bank account details to be updated in the new name.
- Intimate authorities like banks, tax authorities, etc. about the conversion into PLC.
- Print copies of MoA and AoA.
- 1st Board Meeting as a Public Limited Company: Conduct a 1st board meeting within 30 days of incorporation is mandatory. The meeting discussion includes:
- Presenting the Certificate of Incorporation to notify every board member.
- Appointment of company’s auditors (must be appointed within 30 days of incorporation).
- Fix the company’s financial year.
- Approve preliminary expenses.
- Obtain the commencement of business certificate within 180 days of the incorporation.
Public Limited Companies are subject to strict compliance requirements to maintain transparency. The ongoing compliance for PLC are:
- Maintain proper accounting books.
- Filing annual reports every year.
- Maintenance of statutory registers.
- Conduct at least 4 board meetings every calendar year, maximum gap between two meetings cannot be more than 180 days.
- Implement good corporate governance mechanism.
