By Admin 
Running a business involves making some big decisions, and one of the most important choices a company can make is shifting from being a private company to a public one. This change opens up opportunities like raising money from the public and building the company’s reputation, but it also comes with added responsibilities and rules.
In this blog, we’ll explain in plain language what it means to convert a private company to a public one, why businesses choose this path, and how the process works in India.
Private vs. Public Company: What’s the Difference?
Before jumping into the process, let’s clarify what makes a private company different from a public one:
- Private Company: A private company is owned by a small group of people, such as family, friends, or a few investors. The company’s shares are not available to the public, and there are restrictions on how shares can be transferred.
- Public Company: A public company can sell shares to the public on the stock market. This means anyone can buy a part of the company. Public companies tend to have more shareholders and must follow stricter rules, as they deal with the public’s money.
Why Do Companies Go Public?
Companies often switch from private to public for several reasons:
1. To Raise More Money
The biggest reason companies go public is to raise money. When a company sells shares to the public through an Initial Public Offering (IPO), it can gather funds to grow the business, launch new projects, or pay off debts.
2. Increase in Trust and Visibility
Being listed on the stock market makes a company more visible and can improve its reputation. Public companies are often seen as more stable and reliable, which can help them attract more investors, customers, and partners.
3. Easier to Trade Shares
Going public makes it easier for the company’s original owners and investors to sell their shares. Since public companies have more liquid shares, they can be easily bought or sold on the stock exchange.
4. Attracting Skilled Employees
Public companies can offer stock options to employees, which can help attract top talent. When employees have a stake in the company, they are more likely to be motivated to help the company succeed.
Steps to Turn a Private Company into a Public Company
If a company in India decides to go public, it must follow certain steps:
1. Amend the Company’s Rules
The first step is to update the company’s Articles of Association (AoA) by removing any restrictions on share transfers and allowing the company to offer shares to the public.
2. Board of Directors’ Approval
The Board of Directors needs to pass a resolution agreeing to change the company’s status from private to public. This resolution explains why the company is making this change and outlines the steps to follow.
3. Get Shareholders’ Approval
The company must also get approval from its shareholders. At least 75% of the shareholders need to agree to the change during a special meeting.
4. File Documents with the Registrar of Companies (RoC)
After receiving approval from shareholders, the company must submit several forms to the Registrar of Companies (RoC), such as:
- Form MGT-14 (to record the special resolution)
- Form INC-27 (the application for conversion)
The company must also update its official documents to reflect its new status as a public company.
5. Approval from the RoC
Once all documents are submitted, the RoC will review them. If everything is in order, the RoC will issue a certificate that officially recognizes the company as a public company.
6. Prepare for an IPO (Optional)
If the company wants to offer shares to the public, it will need to prepare for an IPO. This involves following rules set by the Securities and Exchange Board of India (SEBI), which may include having a minimum amount of paid-up capital.
What Changes After Conversion?
Once a company becomes public, there are a few important changes to be aware of:
1. More Reporting
Public companies are required to share regular updates about their finances with shareholders and regulators. This includes quarterly financial reports and annual statements about the company’s performance.
2. More Shareholders
A public company will have more shareholders, which means there’s more work involved in managing things like shareholder communication, dividends, and voting rights.
3. Stricter Rules
Public companies must follow more rules, especially around corporate governance and transparency. They must meet the requirements set out in the Companies Act, 2013, and SEBI regulations.
4. Stock Market Pressures
Public companies are subject to market forces, meaning their stock prices can be affected by investor behavior and market trends. This can create pressure for the company to meet short-term performance goals.
Challenges of Going Public
While there are many advantages to going public, the process also has its challenges:
- Costs: Going public can be expensive, involving legal fees, compliance costs, and the expenses of launching an IPO.
- Less Control: As more shares are sold to the public, the original owners and founders may lose some control over the company.
- Greater Scrutiny: Public companies face more scrutiny from shareholders, the media, and market analysts, which can create pressure to focus on short-term results.
Conclusion: Is Going Public the Right Choice?
Converting from a private company to a public company is a big decision. It can bring new opportunities, like raising capital and boosting credibility, but it also means taking on more responsibilities and facing greater scrutiny. Companies need to carefully consider both the benefits and the challenges before making this transition.
For businesses looking to grow quickly and attract more investment, going public can be a great option. However, for some companies, staying private might offer more flexibility and control.
In either case, it’s important to fully understand the process and plan accordingly for a smooth transition.