Conversion of a Public Company into a Private Company: Legal Requirements

Key Takeaways

• A public company converts into a private company under Section 14 of the Companies Act, 2013, read with Rule 41 of the Companies (Incorporation) Rules, 2014, which requires both a special resolution and the approval of the Regional Director (RD).
• The process involves passing a board resolution and a special resolution at the EGM, filing Form MGT-14 within 30 days, publishing a Form INC-25A advertisement and serving notices to creditors, filing Form RD-1 with the RD within 60 days, and filing Forms INC-28 and INC-27 after the RD order.
• The company must not exceed 200 members after conversion and must obtain consent or NOCs from all creditors and debenture holders (if required).
• The RD also verifies that there is no pending prosecution, no default in deposits or debentures, all charges are satisfied, and no managerial dispute exists.
• Existing debts, liabilities, and contracts remain fully valid after conversion, and the company must use “formerly [old name]” on its documents for two years.
• The ROC issues a fresh Certificate of Incorporation confirming the private company status, and the process usually takes one to three months.

Why Do Companies Convert from Public to Private? Top Reasons 

Companies convert from a public to a private structure to gain more control, flexibility, and operational efficiency. The most common reasons include the following:

1. Reduced Regulatory Burden: A public company must follow extensive disclosure norms, audit requirements, and SEBI regulations (where the company is listed). Converting to a private company lowers these compliance obligations.
2. Greater Operational Flexibility: A private company can take strategic decisions promptly, as it does not face the same expectations from public shareholders.
3. Simplified Decision-Making: With fewer legal formalities and a closely-held shareholder base, the company can execute decisions more efficiently.
4. Limited Fundraising Needs: If a company does not require public capital, it can operate effectively with private funding options. Keeping the public company structure in this case is unnecessary and exhaustive. 

Laws Governing the Conversion of a Public Company into a Private Company

The conversion of a public company into a private company is governed by the Companies Act, 2013, read with the Companies (Incorporation) Rules, 2014. The key provisions are as follows:

• Section 14 of the Companies Act, 2013: This section permits a company to alter its Articles of Association (AOA) by passing a special resolution, including the alterations needed to convert a public company into a private company.
• Section 18 of the Companies Act, 2013: Permits a company registered under the Companies Act, 2013, to convert from one class of company to another by complying with the applicable provisions of the Act.
• Rule 41 of the Companies (Incorporation) Rules, 2014: Requires the company to file e-Form RD-1 with the Regional Director (RD) within 60 days of passing the special resolution. The Companies (Incorporation) Fourth Amendment Rules, 2018, transferred the approval authority from the NCLT to the Regional Director.
• Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014: Requires certain converted companies to dematerialize their shares unless they qualify for an exemption, such as being a small company.

Eligibility Criteria for the Public to a Private Company Conversion

Not every public company can directly convert into a private company. To be eligible for the public to private company conversion, a company must meet the following criteria:

1. Company Type & Member Count Considerations

They must comply with the following: 

• The applicant must be an existing public company registered under the Companies Act, 2013.
• If the company is a listed company, it must comply with SEBI delisting rules before conversion.
• After conversion to a private company, it must ensure the total number of members does not exceed 200, as per Section 2(68).
• The MoA should not contain clauses prohibiting conversion. If it does, it must be amended first.
• Ensure that the shareholding structure allows for the private company restrictions.

2. Sectoral or Regulatory Constraints

Certain regulated entities may require additional approvals before conversion, depending on their sector:

• RBI-regulated companies (e.g., NBFCs, banks)
• SEBI-regulated entities (if listed)
• Other sector-specific regulators, where applicable (insurance, telecom, etc.)
• All annual returns, financial statements, and ROC filings must be up to date.
• If the company has foreign shareholders or FDI, prior approvals may be required under FEMA Regulations for regulated sectors. 

3. Creditor or Debenture Holder Consent

• Creditors and debenture holders must be notified of the proposed conversion.
• Their consent may be required, especially if the conversion affects the terms of loans, debentures, or financial obligations.
• This ensures the company has no outstanding objections that could delay or block the conversion.
• Ensure all tax obligations are settled. 

4. No Pending Defaults or Proceedings

The Regional Director requires the company to declare and verify that:

• No prosecution, inquiry, inspection, or investigation is pending against the company under the Companies Act, 2013.
• There is no default in the repayment of matured deposits, debentures, or interest on them.
• All charges are satisfied, or a NOC has been obtained from the charge holder for any subsisting charge.
• No resolution is pending to be filed under Section 179(3), and there is no unresolved managerial dispute.

Forms Required for Conversion of a Public Company into a Private Company

The process of conversion of a public company to a private company requires filing multiple MCA e-forms with the Registrar of Companies (ROC) and the Regional Director (RD). These include:

Form	Purpose	Filed With	Timeline
MGT-14	File the special resolution approving the conversion and amendments to the MOA and AOA.	ROC	Within 30 days of passing the special resolution
INC-25A	Publishes a public notice inviting objections to the proposed conversion.	English and vernacular newspapers	At least 21 days before filing RD-1
RD-1	Seeks the Regional Director’s approval for the conversion.	Regional Director	Within 60 days of passing the special resolution
INC-28	File the Regional Director’s approval order with the ROC.	ROC	Within 15 days of receiving the RD’s order
INC-27	Gives effect to the conversion and registers the amended MOA and AOA.	ROC	Within 15 days of receiving the RD’s order

Note: File Form MGT-14 before Form RD-1, as RD-1 requires the SRN of MGT-14. After the Regional Director approves the application, file Forms INC-28 and INC-27 using the latest versions available on the MCA portal within the prescribed timeline.

Checklist for Converting a Public Company into a Private Company

The following checklist sets out the key actions from the board meeting to the final ROC updates:

1. Hold a board meeting, pass the board resolution, and fix the date of the EGM.
2. Prepare an affidavit by the Managing Director or any two directors, along with the list of creditors and debenture holders.
3. Hold the EGM, pass the special resolution with a 75% majority, and alter the MOA and AOA.
4. File Form MGT-14 within 30 days of passing the special resolution.
5. Publish Form INC-25A in one English and one vernacular newspaper at least 21 days before filing RD-1 and serve notices on the creditors, the ROC, the RD, and the concerned regulators.
6. File Form RD-1 with the Regional Director within 60 days of passing the special resolution.
7. Respond to the Regional Director’s queries, keeping in mind that the RD permits a maximum of two resubmissions.
8. After the RD issues the order, file Forms INC-28 and INC-27 within 15 days.
9. Collect the fresh Certificate of Incorporation and update the CIN, PAN, TAN, GST, bank records, and licenses.

How to Convert a Public Company into a Private Company?

The complete procedure for the conversion of a public company into a private company involves these steps:

Step 1: Hold a Board Meeting

Send the board meeting notice to all directors at least 7 days in advance under Section 173(3). During the meeting, pass a board resolution for the conversion of a public company into a private company to:

• Approve the proposal to convert the company into a Private Company.
• Approve the draft special resolution altering the Memorandum and Articles of Association.
• Fix the date, time, and venue of the Extraordinary General Meeting (EGM).
• Authorize a director or company secretary to issue the EGM notice.

At this stage, the directors carry out due diligence to confirm that all statutory, financial, and creditor-related matters are in order. The Managing Director or any two directors then prepare an affidavit under Rule 41, listing the creditors and debenture holders. This affidavit forms a mandatory part of the RD-1 application.

Step 2: Issue the EGM Notice and Pass the Special Resolution

Once the board approves the proposal, the next stage is to seek the shareholders’ approval through a special resolution. Follow these steps:

• Send the EGM notice to all shareholders at least 21 clear days before the meeting, unless members holding 95% of the voting rights consent to shorter notice.
• In the notice, include the date, time, venue, and explanatory statement under Section 102 of the Companies Act, 2013. The explanatory statement should clearly explain:
  • The purpose of the conversion.
  • Key changes in the MoA and AoA.
  • Implications for shareholders and creditors.
• Hold the EGM, ensure the required quorum, and pass the special resolution for the conversion of a public company to a private company. Record the minutes and voting results.

Step 3: File MGT-14 with ROC

Companies must file the MGT-14 with the ROC within 30 days of passing the special resolution. They must attach the following documents to it: 

• Certified true copy of the special and board resolutions.
• The notice of the EGM and explanatory statement.
• Altered MoA & AoA.

Step 4: Publish Advertisement and Serve Notices

• Publish an advertisement in Form INC-25A in one English and one vernacular newspaper, at least 21 days before filing the RD-1 application.
• Serve notice of the application on all creditors, debenture holders, the ROC, RD, and other regulatory authorities (such as GST and Income Tax).

Step 5: File RD‑1 (Application to Regional Director)

The company must file RD-1 with the Regional Director within 60 days of passing the special resolution. It must also submit the following documents alongside it:

• Draft amended MoA & AoA reflecting conversion.
• Minutes of the EGM with voting details (names of dissenters, vote counts).
• Board resolution or Power of Attorney authorizing the application.
• Declaration by Key Managerial Personnel (or directors) confirming compliance with member-limit, no deposits in violation, etc.
• List of creditors and debenture-holders (as of a date not more than 30 days before filing), with amounts owed.
• Affidavit by MD / two directors attesting to the correctness of the creditor/debenture-holder list.
• A copy of the newspaper advertisement 

The RD may seek additional information, resubmissions (up to two times), or schedule a hearing if objections arise.

Step 6: Post-RD Order Filings- INC‑28 and INC‑27

After the RD approves the conversion, file Form INC-28 (to submit the RD’s order) and Form INC-27 (to give effect to the conversion) with the ROC within 15 days. After verifying the filings, the ROC issues a fresh Certificate of Company Incorporation, confirming the company’s conversion into a Private Company.

Post-Approval Compliance Checklist for Conversion of a Public Company to a Private Company

The post-approval compliance requirements the company needs to meet are:

• Once the conversion is approved and the order is filed, the company must properly register the updated MoA and AoA with the ROC. Then, obtain the new Certificate of Company Incorporation and make sure that the company’s CIN or status in the ROC records shows “Private Limited”.
• Display the previous name along with the new name as required under Section 12(3), where applicable.
• After conversion, you need to update the bank KYC, GST, and other licences. The company must ensure that all official documents now correctly show “Private Limited Company” for full legal and identity compliance.
• If earlier a listed company, inform SEBI and ensure all delisting formalities are completed. 
• Regulated companies must also update their sectoral regulators, like RBI/IRDAI/TRAI. They must file any required returns to avoid non-compliance or penalties.
• If the converted company is not a “small company,” dematerialize its shares under Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

Cost Estimates of Converting a Public Company to a Private Company

The cost of the conversion of a public company to a private company includes government fees, stamp duty, newspaper ads, and professional charges for applying to the Regional Director. 

Here’s a breakdown of the estimated expenses:

Category	Estimated Cost Range
ROC Filing Fees	Rs. 3,000 – Rs. 10,000
Stamp Duty	Rs. 2,000 – Rs. 25,000
Advertisement Costs	Rs. 10,000 – Rs. 50,000 (depending on circulation)
Professional / Legal Fees (drafting, RD application, filings)	Rs. 25,000 – Rs. 1,50,000 (varies by capital, complexity, and firm)

Note: These are indicative figures. The actual cost depends on the state, authorized capital, newspaper rates, and the professional service provider.

Common Reasons for Rejection of Public to Private Company Conversion Application and How to Avoid Them?

Most Public Company to Private Company conversion applications are delayed at the RD stage because of filing errors or incomplete documents. Avoid these common mistakes:

• Pending Creditor Objections: Objections from creditors or debenture holders can delay the approval. Obtain written NOCs from all creditors and debenture holders before filing Form RD-1.
• Incomplete Public Notice: Publish Form INC-25A in one English and one vernacular newspaper, and serve notices on the ROC, RD, creditors, debenture holders, and other applicable authorities. Keep proof of publication and service.
• Missing the RD-1 Deadline: File Form RD-1 within 60 days of passing the special resolution. Prepare the required attachments early to avoid last-minute delays.
• Pending ROC Compliances: Clear all overdue ROC filings, including annual returns and financial statements, before applying. Also, settle any outstanding deposits or debentures.
• Missing Mandatory Declarations: Attach all required KMP declarations, the directors’ affidavit, and other prescribed documents. Missing declarations often result in resubmission.
• Unresolved Charges: Satisfy all existing charges or obtain a No Objection Certificate (NOC) from the charge holder before filing the application.
• Incorrect MOA or AOA: Amend the MOA and AOA correctly through the special resolution. Any inconsistency in the constitutional documents may delay approval.

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