A deemed public company is a private company that the law treats as a public company because of its relationship with a public company. Under the Companies Act, 2013, this happens in one specific situation: the proviso to Section 2(71) provides that a private company that is a subsidiary of a public company is deemed to be a public company, even if its Articles of Association retain the restrictions applicable to a private company.
The status arises automatically by operation of law. The company does not need to voluntarily convert into a public company. It is also important to distinguish the current law from the earlier regime. Under the Companies Act, 2013, turnover, deposits, or shareholding levels do not independently make a company a deemed public company. Those triggers were associated with Section 43A of the Companies Act, 1956, which ceased to have effect from 13 December 2000.
Key Takeaways
- A deemed public company is a private company that the law treats as a public company without requiring voluntary conversion.
- Under the Companies Act, 2013, the status arises when a private company becomes a subsidiary of a public company, as provided by the proviso to Section 2(71).
- The old turnover, deposit, and shareholding based triggers belonged to Section 43A of the Companies Act, 1956 and do not apply under the current law.
- The status arises automatically when the company becomes a subsidiary of a public company, even if its Articles of Association retain private-company restrictions.
- A deemed public company becomes subject to applicable public-company compliance requirements, including the minimum requirement of three directors and relevant ROC, audit, disclosure, CSR, and related-party provisions.
- The company can cease to be a deemed public company when it stops being a subsidiary of a public company, subject to the applicable legal requirements.
What is a Deemed Public Company?
A deemed public company is a private company that the law treats as a public company for the purposes of the Companies Act, 2013. The company does not voluntarily choose this status. It arises automatically when a private company becomes a subsidiary of a public company.
The company may continue to have “Private Limited” in its name and retain private-company restrictions in its Articles of Association. However, the Companies Act treats it as a public company for applicable compliance purposes. This status therefore arises by operation of law, not through a conversion process.
The Legal Basis: Proviso to Section 2(71)
The current legal basis for deemed public company status is the proviso to Section 2(71) of the Companies Act, 2013, which defines a public company. It provides that a subsidiary of a company that is not a private company is deemed to be a public company, even if the subsidiary continues to be a private company under its articles.
This means:
- The trigger is structural: The private company must become a subsidiary of a public company. Turnover, profit, deposits, or shareholding thresholds do not independently trigger the status under the 2013 Act.
- Private-company restrictions do not prevent the status: The subsidiary may retain private-company provisions in its Articles of Association, but the Act treats it as public for the purposes covered by the law.
How Does a Private Company Become a Deemed Public Company?
Under the Companies Act, 2013, the relevant trigger is that the private company becomes a subsidiary of a public company.
Section 2(87) generally treats a company as a subsidiary where the holding company:
- Controls the composition of its Board of Directors; or
- Exercises or controls more than one-half of the total voting power, either on its own or together with one or more subsidiary companies.
Once the private company falls within this relationship with a public company, the deemed public status arises automatically.
How Does the Deeming Process Work?
The company does not become deemed public merely because another company acquires some shares in it. The statutory subsidiary relationship must exist under Section 2(87).
Once that relationship exists:
- The private company becomes a subsidiary of the public company.
- The proviso to Section 2(71) automatically treats the subsidiary as a public company for the purposes of the Companies Act.
- No separate application or voluntary conversion process is required to create the deemed status.
- The company must assess and comply with the public-company provisions that now apply to it.
- It may need to review its Board composition, Articles of Association, statutory registers, disclosures, filings, and other compliance requirements to reflect the change in its legal treatment.
Compliance Requirements for a Deemed Public Company
Once a private company acquires deemed public company status, it must comply with the public company provisions that apply to it under the Companies Act, 2013. Key requirements can include:
- Minimum three directors: Section 149 requires a public company to have at least three directors, compared with two for a private company.
- Statutory audit: The company must appoint auditors and have its financial statements audited as required under the Act.
- ROC filings: It must file its financial statements, annual return, and other applicable forms with the Registrar of Companies within the prescribed timelines.
- Board and general meeting requirements: The company must follow the provisions applicable to public companies for meetings, notices, disclosures, and corporate governance.
- Related-party transactions: Public-company provisions relating to related-party transactions and applicable approvals may apply.
- CSR compliance: Section 135 applies where the company meets the prescribed net-worth, turnover, or profit thresholds.
- Loss of private-company exemptions: The company cannot continue to claim exemptions that the Companies Act reserves specifically for private companies where its deemed public status makes those exemptions unavailable.
Advantages and Challenges of a Deemed Public Company
A deemed public company can benefit from stronger governance and greater credibility, but it also faces various advantages:
| Advantages | Challenges |
| Public-company requirements can strengthen board oversight, internal controls, and corporate governance. | Additional filings, disclosures, meetings, and governance requirements increase administrative work. |
| Stronger compliance can improve confidence among banks, investors, suppliers, and business partners. | Audit, professional, filing, and governance expenses can increase recurring costs. |
| A public company can maintain control through a subsidiary while the subsidiary retains its private-company identity. | The company may lose exemptions and relaxations available specifically to private companies. |
| Experience with public-company compliance can help if the company later considers conversion, restructuring, or listing. | The company faces greater regulatory scrutiny and must maintain stronger records and disclosures. |
When Does a Deemed Public Company Cease to Be Public?
A deemed public company’s status is linked to its position as a subsidiary of a public company. Therefore, when that statutory relationship ends, the company should reassess whether it continues to fall within the proviso to Section 2(71).
This may happen, for example, when:
- The company ceases to be a subsidiary of the public company because the required control or voting relationship no longer exists.
- The holding company itself ceases to be a company that is not a private company, subject to the applicable provisions.
- A restructuring changes the ownership or control relationship so that the subsidiary conditions under Section 2(87) no longer apply.
Steps to Revert to Private Company Status
A change in shareholding alone does not automatically restore private-company status. Instead, the company should first confirm that it no longer meets the conditions for deemed-public status and complete the required formalities.
The key steps are:
- Review the company’s ownership, voting rights, and Board control to establish that it is no longer a subsidiary of a public company.
- Confirm that the company no longer falls within the deemed-public provision under Section 2(71). A change in shareholding alone does not automatically establish this.
- Ensure the Articles contain the requirements for a private company, including restrictions on share transfers, the 200-member limit, and the prohibition on inviting the public to subscribe for securities.
- File any required forms with the Registrar of Companies and update the company’s statutory registers and corporate records to reflect the change.
- Once the company validly returns to private-company status, it can claim the exemptions and relaxations available to private companies, subject to meeting the relevant conditions.
Deemed Public vs Private vs Public Company
The table below outlines how a deemed public company compares with a private company and a public company.
| Basis | Private Company | Deemed Public Company | Public Company |
| Legal position | Private company | Private company treated as public under Section 2(71) | Public company |
| How status arises | Incorporation or conversion as a private company | Automatically when it becomes a subsidiary of a public company | Incorporation or conversion as a public company |
| Name | Ends with “Private Limited” | Generally continues to use “Private Limited” | Ends with “Limited” |
| Minimum directors | 2 | 3 | 3 |
| Minimum members | 2 | 2, subject to applicable provisions | 7 |
| Articles | May contain private-company restrictions | May retain them, but applicable public-company provisions prevail | Cannot rely on private-company exemptions merely because of its articles |
| Applicable provisions | Private-company provisions, subject to exemptions | Public-company provisions applicable by law | Public-company provisions |
