Convert a Private Limited to Public Limited Company in India

A private limited company, famously known as an LTD, is a privately held company. This implies that the business limits owner liability to its shares and limits the number of shareholders to 50. It also restricts shareholders from trading shares publicly.

A Public Limited Company, legally known as PLC, is a publicly held company. It is a limited company whose shares can be traded with the public. PLC can be listed or not listed on the stock exchanges. PLC requires a minimum of three directors as a prerequisite.

Advantages of Public Limited Company

There is no restriction on the transferability of shares as it is open to the public.
The scope for a PLC is vast in comparison to a limited number of people for a Private Limited Company.
Capital for PLC can be raised from the general public, giving it more opportunity for growth and success.
Systemized functioning will help in building the business and good teamwork.

Methods of going public

There are many reasons why a Private Limited company converts to a Public Limited company. But are these company heads aware of the options on how to convert a private limited company to a public limited company? The reason for the conversion of a private limited company to a public limited company can be varied, like raising the investment in the business, enabling share transferability among the general public, and so on. But the actual method and procedure for conversion is the real task to execute. Therefore, we have discussed the three most popular methods of conversion of a Pvt Ltd Company into a Public Ltd Company.

Issuing IPOs

Initial Public Offering (IPO)

An Initial Public Offering (IPO) is the most common way a private company can go public. However, an IPO is a lengthy process. After the conversion, the public company has to observe many strict requirements. As a result, the company has to execute a typical IPO over 6 to 12 months.

IPO process

The first phase of an IPO is when the company begins to prepare for the move and performs an assessment to identify issues if any. To do so, the firm hires an investment banker, who identifies its goals, lays out a timeline, and delivers the report to you.

Next, the company begins executing the plan it had developed in the first phase. During this time, companies gather the data necessary for registration and prepare legal documents. Once the listing company files for registration, it enters a quiet period until the authority approves its IPO plans. In this period, when IPO information release is limited, the SEBI allows companies to communicate about other matters, including disclosing factual business information. After the company gets a go-ahead from the SEBI and meets the listing requirements of stock exchanges, its shares can begin trading.

Now, the IPO is complete, and the firm is officially a public company.

Direct Listing: Bypass the traditional approach

Direct Listing is a relatively new process that companies can use to go public and raise capital without doing an IPO. A company can bypass the traditional underwriting process when it goes public through a direct listing.

Comparison with IPO

In case of an IPO, the investment bankers undertake price discovery for the shares to be sold. Typically, larger investors get preferential treatment for the allocation of shares on the day of the Direct Listing. On that day, the company's shares become available to be bought and sold on the stock exchange by any investor. Also, the price discovery takes place through the buy and sell orders on the exchange without any bank underwriting.

Benefit of Direct Listing

A benefit of this type of public sale of shares is that it increases the number of investors. In addition, these investors can purchase company shares, which helps to level the playing field. In recent years, companies such as Spotify, Slack, and Coinbase have opted for direct listings to go public.

SEBI on Direct Listings

The SEBI's recent decision to allow direct listings was not unanimous. Two commissioners released a statement sharing their belief that eliminating underwriters from the IPO process removes a layer of due diligence. This will help to protect investors' interests. Proceed with caution if you plan to purchase shares through a direct listing.

Reverse Merger: Merging with public companies

A Reverse Merger is a transaction in which a private company goes public by means of merging with or being acquired by a company that's already public. In a reverse merger, the acquiring company is usually a shell company or a Special Purpose Acquisition Company (SPAC).

While the mechanism has existed for many years, it has recently gained popularity. Some market participants believe it offers more certainty for pricing and control over deal terms than a traditional IPO.

Example of a Reverse Merger

A SPAC is a company that goes public without actual business operations or selling products. Instead, the company issues an IPO and then uses the capital raised in the IPO. Then, the company merges with or acquires an existing private company. After the merger, the private company's leadership takes over. Also, the new firm continues to operate the business of the previously private company. An example of this is a sports-betting company DraftKings merged with a public SPAC Diamond Eagle Acquisition Corp. After the Merger, the shares began trading on the Nasdaq Stock Market in April 2020.

Why choose Reserve Merger?

A Reverse Merger often represents a quicker and cheaper means of going public. That's because the private company can merge with an existing company rather than going through the entire IPO process from scratch.

Eligibility criteria to convert a Private Limited to a Public Limited Company in India

Before you're allowed to convert your private limited company into a public limited company, you must fit the following criteria

You should have at least seven members.
You should have at least three directors.
You, as an applicant, must maintain a minimum capital of 5 lakh rupees.
You must have the consent of the board members and financial and operational creditors before you can go through with this private to public conversion.

Documents required for converting a Private Limited to a Public Limited Company in India

E-form MGT 14 – Special resolution for conversion of the company into a public company is to be filed with the following attachments:

Altered Memorandum and Articles of Association (MoA/AoA)
A certified copy of the Board resolution for conversion (optional)
Notice of Extra Ordinary General Meeting (EGM) that is held to pass the Board resolution, which is the approval of Directors for conversion of a Private Limited Company to a Public Limited Company
E-from INC 27 – Application for conversion of a Private Limited to Public Limited company
Minutes of the Meeting where approval was given for conversion and altered Articles of Association

Process for converting Private Limited to Public Limited Company in India

Process of conversion of a Private Ltd Company into a Public Ltd Company

How to convert a private company into a public company? The process of conversion of a Private Limited company to a Public Limited Company is as follows:

Call a board meeting and pass a resolution after mutual agreement to convert your Pvt Ltd company into a public Ltd company (LTD to PLC)
Call an Extraordinary General Meeting inviting your shareholders. Pass a special resolution with their approval to go through the conversion as mentioned above.
Pass the resolution to increase the number of directors from two to three (if applicable).
Do an RoC filing to make alterations to Articles of Association.
File Form INR 27 to convert the private limited company to a public limited company.
Alongside INR 27, attach the Certificate of Incorporation of your private limited company when filing the application. It will prompt the registrar to initiate the conversion process.

Our Assistance to convert your Private Limited to a Public Limited Company in India

We at Registrationwala provide end-to-end solutions for conversion from Private Limited to Public Limited Company. Our services include:

Making changes to the Articles of Association of your company
Filling the Form INR 47
Reviewing the application and making changes if needed
Submitting the FORM to the Registrar of Companies.
Obtaining Certificate of Incorporation of the public limited company.

Registrationwala.com is a leading legal consultancy firm providing comprehensive services relating to private limited to public limited company conversion.

So, take your first steps towards this conversion and reach out to us.

Frequently Asked Questions- FAQs

Q1. What is a Private Limited Company?

A. A private limited company, famously known as an LTD, is a privately held company. This implies that the business limits owner liability to its shares and limits the number of shareholders to 50. It also restricts shareholders from trading shares publicly.

Q2. What is a Public Limited Company?

A. A Public Limited Company, legally known as PLC, is a publicly held company. It is a limited company whose shares can be traded with the public. PLC can be listed or not listed on the stock exchanges. PLC requires a minimum of three directors as a prerequisite.

Q3. Why would a private limited company change to a public limited company?

A. Because of the following advantages:

No restriction on the transferability of shares.
Broader scope of a PLC
Capital raised from the general public gives more opportunity for growth and success
Systemized functioning for building the business

Q4. What makes a private company eligible to convert into a public company?

A. Before you're allowed to convert your private limited company into a public limited company, you must fit the following criteria