Road To IPO: Startups’ Guide To Converting From Private To A Public Limited Company

Converting a private limited company to a public limited company has both benefits and drawbacks. We have attempted to disseminate information on both, as well as processes and timelines so that startups can learn everything they need to know about the conversion process in one place.

Who Do Companies List?

• Quick Share Transfer: There are no restrictions on the right to transfer shares (shares are easily transferable to anyone), and there are no limits on the number of members.
• Raise Capital: There is no prohibition on inviting the public to subscribe to any of the company’s securities.
• Greater Credibility: The liability of each shareholder or member is limited.  This characteristic remains intact with this conversion. Their liability is limited to the extent of their shareholding. The individual or personal assets of shareholders or members are not at risk.

Advantages A Public Limited Company Has Over A Private Company 

Raising Capital Through Public Issue Of Shares

The most obvious advantage of being a public limited company is the ability to raise share capital.

Since it can sell its shares to the general public and anyone can invest their money, the capital that can be raised is typically much greater than that of a private limited company. It’s also possible that having a stock listed on an exchange will entice hedge funds, mutual funds, and other institutional traders to invest.

Banks and other financial institutions may also be more willing to lend to a public limited company. Particularly one that is publicly traded so that they can pledge shares of a publicly traded company as one of the security. The company may also be in a better position to negotiate lower interest rates and loan repayment terms.

Wide Shareholder Base

Offering shares to the public allows for the risk of company ownership to be spread across a large number of shareholders. This may allow early investors in the company to sell some of their own shares at a profit while still retaining a substantial stake in the company. 

Transferability Of Shares

Shares in a public limited company are more easily transferable than those in the private equivalent, providing shareholders with greater liquidity. 

Disadvantages Of A Public Limited Company

More Regulatory Requirements

The legal and regulatory requirements for a public limited company are more stringent than those for a private limited company.

Ownership & Control Issues

The shareholders of a private limited company are usually people known to the directors or founders. A private company will frequently be selective in who it admits as a shareholder, ensuring that they support the company’s vision and plans. 

In the case of a public company, it is more difficult to explain who controls the company.

Lack Of Confidentiality 

To maintain shareholder trust and transparency, the corporation makes full public disclosure, making concealment impossible to maintain. The corporation cannot maintain confidentiality because the public is involved in decision-making.

How To Convert A Private Company To A Public Company

According to Sections 13, 14, and 15 of the Companies Act of 2013, as well as Rules 29 and 33 of the Companies (Incorporation) Rules of 2014,

Call & Hold Of A Board Meeting

The board will consider the proposal for the company’s conversion to a public company.

Call & Hold An AGM/EGM

Hold the general meeting on the scheduled date, and pass the special resolution for the conversion of the private company into a public company and for changing the MOA and AOA.

File For Registrar Of Company (ROC)

• The application must be filed to CG (ROC) in Form No. INC-27 with the fee, according to Rule 33(1) of the Companies (Incorporation) Rules, 2014.
• Section 117(3)(a) requires that a copy of this special resolution be filed with the relevant ROC using form MGT.14 within 30 days of the resolution being passed in the EGM.
• According to Rule 33(2) of the Companies (Incorporation) Rule,2014, a copy of the CG’s order approving the change must be filed with ROC in Form INC.28 along with the modified MOA and AOA within 15 days of receipt of the order form CG.
• Obtain the fresh Certificate of Incorporation (COI).

Tentative Time & Cost Of Conversion

Converting a private limited company to a public limited company typically takes 30-50 working days. The time it takes to convert will be determined by the company’s submission of relevant documents and the speed with which government approvals are obtained. To ensure a quick conversion, make sure all required documents are submitted.

The conversion fee structure will be determined by the subject company’s timely submission of relevant documents. The form-filling fees range between INR 10K and INR 20K while the consultancy fees range between INR 75K and INR 100K.