How to Convert a Public Company into a Private Company in India?

If a public company in India wants to become a private company, it has to go through a legal process. Public companies, which are listed on stock exchanges, often choose to go private to have more control, reduce the burden of strict regulations, or plan for long-term growth without the pressure of public shareholders. Converting a public company into a private one involves several steps under the Companies Act, 2013. Let’s break down the process into simple terms.

Step 1: Hold a Board Meeting

The first step is to have a board meeting with the directors of the company. During this meeting:

• The directors discuss whether it makes sense for the company to go private.
• If they agree, they pass a resolution to move forward with the process.
• They also schedule a general meeting where shareholders will vote on the conversion.

Step 2: Get Shareholders’ Approval

Next, the company needs to get approval from its shareholders. Here’s how:

• A general meeting is called, and all shareholders are invited.
• At the meeting, at least 75% of the shareholders (based on the value of their shares) need to vote in favor of the conversion for it to proceed.

Step 3: Change the Company’s Legal Documents

After shareholders approve, the company needs to update its Memorandum of Association (MoA) and Articles of Association (AoA). These are like the company’s legal identity papers. The changes include:

• Updating the company’s name from “Public Limited” to “Private Limited.”
• Adding restrictions on how shares can be transferred, which is typical for private companies.
• Making sure the company has no more than 200 shareholders (not counting employees).

Step 4: Apply to the National Company Law Tribunal (NCLT)

Once the documents are updated, the company has to file an application with the National Company Law Tribunal (NCLT). This includes:

• The special resolution passed by shareholders.
• The updated MoA and AoA.
• Other required paperwork to show the company is following the rules.

The NCLT will hold a hearing, and if everything checks out, they’ll approve the conversion.

Step 5: File with the Registrar of Companies (RoC)

After getting the NCLT’s approval, the company must file the necessary documents with the Registrar of Companies (RoC). This includes:

• The special resolution from the shareholders.
• The revised MoA and AoA.
• The official NCLT order approving the conversion.

Once the RoC approves everything, they’ll issue a new Certificate of Incorporation, officially making the company private.

Step 6: Follow Stock Exchange and SEBI Rules

Since public companies are often listed on stock exchanges, they have to follow delisting guidelines. This means:

• Informing the stock exchanges where the company was listed.
• Following SEBI (Securities and Exchange Board of India) regulations to protect shareholders, especially if the company needs to buy back shares from public investors.

Step 7: Completion

Once all the legal and regulatory approvals are done, the public company officially becomes a private company. This means fewer compliance requirements and more flexibility in running the business without the pressure of public shareholders.

Why Do Companies Go Private?

Public companies often choose to go private to:

• Reduce compliance: Public companies must follow strict rules, file reports, and be transparent with shareholders. Private companies don’t face the same level of scrutiny.
• More control: By going private, company owners or founders can have more control over decision-making.
• Focus on long-term goals: Private companies don’t have to worry about short-term pressure from public shareholders, so they can focus on longer-term growth strategies.

Conclusion

Converting a public company into a private company in India involves several steps, but it’s a process that allows businesses to gain more control and flexibility. From getting shareholder approval to filing with the NCLT and RoC, the process takes careful planning and attention to legal guidelines. For businesses looking to simplify their operations and focus on long-term growth, going private can be a smart move.

This guide gives you a straightforward look at how the conversion works, but each step requires precision and careful compliance with the law.