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

Ever heard of the conversion of a public company into a private company? Companies usually convert the other way around, but you may be surprised that it happens quite often. Many public companies take this route to simplify compliance and reduce regulatory burden. With private limited compay incorporation, firms enjoy greater strategic flexibility, they can often scale faster and make quicker decisions. 

After all, it’s not easy to maintain the status of being a Public Limited Company by being the centre of everyone’s scrutiny. That’s why companies with a small, closely connected group of shareholders and limited fundraising requirements generally choose to convert. 

However, the conversion process is not as easy as you think. Converting a public company into a private company requires significant legal compliance.

The key steps for the conversion of a public company into a private company in India include:

1. Passing a Board Resolution approving the proposal and calling an EGM.

2. Conducting the Extraordinary General Meeting (EGM).

3. Passing a Special Resolution to alter the Articles of Association.

4. Notice to Creditors and stakeholders inviting objections.

5. Filing Form GNL-1 with the Regional Director, along with required documents.

6. Filing Form RD-1 to obtain approval from the Regional Director.

7. After RD approval, submit Form INC-27 along with the altered Memorandum of Association (MOA) and Articles of Association (AOA) to the ROC.

We will cover the conversion process, the key differences between public and private companies, and why many businesses choose this shift in this blog.

What is the Difference Between a Public and a Private Company? 

Companies can be structured differently based on their ownership, capital needs, and regulatory requirements. Public and Private companies are two common types with distinct features, advantages, and obligations. The difference between a public company and a private company is important for understanding the conversion process. Here’s a detailed comparison table of the two company structures: 

Feature	Public Company	Private Company
Share Trading and Transfer	Listed on the stock exchange, shares are freely tradable and transferable	Cannot issue shares to the public. Restricted transfer of shares
Compliance	Strict regulatory and disclosure requirements	Fewer compliances
Capital Raising	Can raise funds from the public	Relies on private funds or investors
Operational Flexibility	Limited due to regulations	High flexibility

This table can help you understand the basic difference between a public limited company registration and a private one. It also provides clarity on the requirements for converting a private company to a public company and vice versa.

Why Companies Convert from Public to Private: Top Reasons 

Companies often choose to convert from a public to a private structure to gain greater control, flexibility, and operational efficiency. Some of the main reasons include:

1. Reduced Regulatory Burden: Public companies are required to comply with extensive disclosures, audits, and SEBI regulations. Converting a public company to a private company reduces these compliance obligations.
2. Greater Operational Flexibility: Private companies can make strategic decisions faster without the pressure of public shareholder expectations. This ensures flexibility in control and operations.
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 primarily governed by the Companies Act, 2013, along with the guidelines issued by the Ministry of Corporate Affairs (MCA). The following provisions explain the legal framework that companies must follow to ensure a compliant conversion process:

a. Section 14- Companies Act, 2013

Section 14 deals with the alteration of a company’s Articles of Association (AOA). Under Section 14(1), a company may alter its articles only by the strong approval of the company’s shareholders (Special Resolution– 75% shareholders). This includes changes that have the effect of :

• Converting a private company into a public company, or
• Converting a public company into a private company. 

b. Rule 41 and e-Form RD-1 

Rule 41 was added by the “Fourth Amendment Rules, 2018” to enable the conversion of public companies into private companies under the supervision of the MCA. Under this rule, the power of such conversion is given to the relevant Regional Director (RD), rather than the tribunal.

When applying under Rule 41, the company must file e-Form RD-1 with the RD within 60 days of passing the special resolution. RD may ask for additional documents or give hearing dates if objections arise.

c. Ministry of Corporate Affairs (MCA) Important Circulars

Here are some of the important Ministry of Corporate Affairs (MCA) circulars that one should know. Especially when converting a public company into a private company under the Companies Act, 2013, these must be followed: 

1. Circular No. 03/2019 (dated 11 March 2019)

This circular clarifies the filing procedure for e‑Form RD-1. The circular states that the RD must process the RD-1 application even when “Others” is chosen. This could happen due to the updated form not being available on the MCA portal. 

This ensures forms are not rejected due to technical issues until the updated e-Form RD-1 becomes available. 

2. G.S.R. 1219(E)- Companies (Incorporation) Fourth Amendment Rules, 2018

Under the 18 December 2018 notification, approval power for public-to-private conversion shifted from the NCLT to the Regional Director (RD).

This changes the process, making approvals faster and less dependent on tribunal proceedings.

3. Rule 9B (under the Companies (Prospectus and Allotment of Securities) Rules, 2014)

This states that if a converted public company becomes a private company and is not “small,” it must dematerialize its shares.

By “Dematerialize”, it means they should convert physical share certificates into electronic form. This is to ensure the shares are held and traded electronically in a Demat account.

Eligibility Criteria for Public to a Private Company Conversion

Not every public company can directly convert into a private company. To be eligible, 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. 

Conversion of a Public to a Private Company: Pre-Conversion Steps 

Before a public company can convert into a private company, several board-level and governance actions are required. This is to ensure compliance under the Companies Act 2013.

Board Meeting: Notice, Agenda & Draft Resolutions

• The board of directors must hold a meeting with proper notice, notifying all the directors.
• The agenda typically includes:
  
  • Approval to convene an Extraordinary General Meeting (EGM) for conversion.
  • Approval of the draft special resolution altering the Memorandum and Articles of Association.

Due Diligence by Directors

• Directors must carry out due diligence to ensure all statutory, financial, and creditor-related matters are in order.
• Rule 41 requires the MD or two directors to submit an affidavit confirming the list of creditors and debenture holders.
• This affidavit ensures that all creditors are notified and no claims are overlooked. This is crucial for RD approval.

Fixing EGM Date & Drafting Explanatory Statement

• Once the board approves, the company fixes the EGM date and sends notices to shareholders as required under Section 102 of the Companies Act, 2013.
• The explanatory statement under Section 102 should clearly explain:
  
  • The purpose of the conversion.
  • Key changes in the MoA and AoA.
  • Implications for shareholders and creditors.

Passing Shareholder Approvals

After completing the board-level pre-conversion steps, the next step is to obtain shareholder approvals. This can be done through an EGM and passing a special resolution. 

Notice Requirements, Quorum & Timing

• Notice Period: A minimum of 21 clear days’ notice must be given to all shareholders, either physically or electronically.
• Quorum: The quorum is as per Section 103 of the Companies Act, 2013, depending on the number of members.
• The notice must mention the date, time, venue, and a Section 102 statement explaining the conversion’s purpose and effect.

Minutes & Records to Maintain

• EGM Minutes: Record all proceedings, including voting results, objections (if any), and attendance.
• Special Resolution Register: Maintain a special resolution register with details of resolutions passed, dates, and shareholders’ approval.

Statutory Notices to Creditors & Advertisements

After passing the special resolution, the company must inform its creditors and the public as required under the Companies Incorporation, 2014. They must follow the following steps: 

File form INC-25A

Companies must publish a mandatory public notice in Form INC-25A:

• One in an English newspaper
• One in a vernacular (regional language) newspaper

Timeline: The company must publish the advertisement at least 21 days before filing the conversion application with the Regional Director (RD).

Information it should include: 

• Company name, CIN, and registered office address.
• Date of EGM & approval of special resolution for conversion.
• Invitation to creditors or the public to submit objections within 21 days.
• Contact details for sending objections.

Step-by-Step Guide for Filing and Approvals: With Forms, Timelines, and Attachments

The public company must follow the detailed process for the conversion. With multiple documentations, approvals, and legal notices, the process can be quite tricky: 

Step 1: 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 with it: 

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

Step 2: File GNL-1 with ROC 

The company must file GNL-1 with the ROC before applying to the RD. Filing GNL-1 acts as a statutory compliance step. It acts as a formal intimation to the ROC about the company’s intent. 

Step 3: 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 authorising 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 correctness of the creditor/debenture-holder list. 
• Proof of publication of statutory advertisement, proof of notices to creditors, regulatory bodies (if any), ROC, and RD.

Note: If the RD does not act within the statutory timeframe and no objections are pending, the RD is supposed to approve the application.

Step 4: Post-RD Order Filings- INC‑28 and INC‑27

After the RD issues approval, the company must file INC‑28 and INC‑27. 

INC-28: Informs about the notice of an authority order that needs to be recorded with the ROC. It must be filed within 15 days of RD’s approval. 

INC-27: INC-27 records the conversion, after which the ROC issues a new Certificate of Company Incorporation. 

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

The Post-approval compliances 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”.
• 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.

Cost Estimates of Converting a Public Company to a Private Company

Conversion costs include government fees, stamp duty, newspaper ads, and professional charges for applying to the Regional Director. All these costs may differ depending on the circumstances, but for reference, here’s a breakdown of the estimated cost: 

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)
Certifying Professional Fees	Rs. 5,000 – Rs. 20,000
Professional Costs (Estimated)	Rs. 60,000- Rs. 5,50,000         (May Vary)

How RegisterKaro Can Help? 

Converting a public company into a private company involves multiple legal steps, strict timelines, and regulatory compliance. RegisterKaro provides guidance and assistance to make these steps easy for you and helps in the smooth conversion. Here’s what our experienced team of professionals offers:  

• We prepare all board resolutions, EGM notices, and explanatory statements.
• Our team will handle creditor notifications, newspaper advertisements, and statutory filings.
• We ensure accurate RD-1 and INC-27 submissions to the Regional Director and ROC.
• Provides end-to-end guidance on regulatory approvals, including SEBI, RBI, or other sectoral compliance if applicable.

---

Frequently Asked Questions (FAQs)

1. Why would a public company choose to convert into a private company?

Companies usually convert to reduce compliance burden, increase managerial control, and simplify decision-making. Being private lets promoters avoid constant disclosure pressure and focus on long-term strategy without public shareholder scrutiny.

2. What is the legal provision for converting a public company to a private company?

The legal basis for converting a public company into a private company is Section 14 of the Companies Act, 2013, which empowers a company to alter its Articles of Association through a special resolution. This section specifically allows changes that affect the company’s status, including converting from public to private. The provision ensures that such structural changes follow proper corporate governance procedures.

3. Is the Conversion of a public company to a private company legally allowed?

Yes, under the Companies Act, 2013, a public company can convert into a private company by altering its Articles of Association and obtaining approval from the Regional Director (RD). The process must follow strict procedural steps.

4. Who approves the conversion of a public company to a private company?

The conversion requires a two-step approval process. First, shareholders must approve a special resolution at an Extraordinary General Meeting (EGM). Second, the Regional Director (RD) must approve the conversion under Rule 41 of the Companies (Incorporation) Rules, using the RD-1 application. 

5. What Documents Are Needed for Public-to-Private Conversion?

Typical documents include the altered Articles of Association, special resolution, board resolution, list of members, affidavit/declaration by directors, and financial statements. Additional forms like MGT-14 and RD-1 must be filed with the MCA.

6. How long does the conversion process take?

For straightforward cases with no objections or regulator issues, the conversion typically takes 1-3 months from passing the special resolution to completing ROC filings. In more complex cases, such as those involving creditor objections, SEBI/RBI approvals, or hearings before the RD, the process may take up to 4-6 months or longer, depending on the company’s size and sectoral requirements.

7. What happens to existing shareholders after conversion?

Their shareholding remains intact; only the company’s legal status changes. However, the transferability of shares may be restricted since private companies typically include such limits in their Articles.

8. What if the RD refuses approval?

If the RD refuses the application, the company can rectify any deficiencies pointed out in the rejection and resubmit the application. In certain cases, if procedural errors are involved, the company may also have the right to appeal under the Companies Act. Proper documentation, adherence to Rule 41, and timely addressing of objections usually increase the likelihood of approval upon resubmission.

9. Does conversion affect ongoing contracts or liabilities?

No, all liabilities, contracts, and obligations continue as they are. Only the company’s classification changes, not its commitments or responsibilities.

10. Is creditor consent mandatory?

The company must serve notices to all creditors and debenture-holders. While explicit consent from creditors is not always required, any objections they raise may trigger a hearing before the RD. Addressing such objections can delay the conversion and may require the company to provide clarifications, additional affidavits, or revised filings.

11. How long does the entire conversion process take?

It generally takes 2-3 months, depending on document accuracy, whether objections are raised, and how quickly the RD processes the application.

12. What changes are made to the Articles of Association (AOA)?

The AOA must be amended to incorporate all private-company characteristics, restrictions on share transfer, limits on maximum members, and a prohibition on public invitations for securities.

13. Can a listed company convert?

Yes, listed companies can convert to private companies, but they must first comply with SEBI delisting regulations and any other sector-specific regulatory approvals. Delisting procedures, shareholder approvals, and public disclosures must be completed before RD approval can be sought, making the process slightly more complex than for unlisted companies.

14. Are government fees refundable?

Government filing fees for forms like MGT-14, RD-1, and INC-27 are generally non-refundable, even if the RD rejects the application. Similarly, costs incurred for newspaper advertisements, statutory notices, and professional services are usually not recoverable. Companies should plan and budget for these expenses in advance to avoid surprises.