Rules of Public Limited Company convert into Private Limited Company

Rules of Public Limited Company convert into Private Limited Company

Section 2(q) of the Companies Act 1994 provides that Private Company means a company which by its articles restricts the right to transfer its shares and prohibits any invitation to the public to subscribe for its shares or debentures and limits the number of its members to fifty not including person who are in its employment. Where two or more persons hold one or more shares in a company jointly, they shall, for the purpose of this definition be treated as a single member.

Section 2(r) of the Companies Act 1994 provides that Public Company means a company incorporated under the Company Act 1994 or under any law at any time force before the commencement of this Act and which is not a private company.

Section 232. Amendment of Articles for conversion of a public company into private company:

  1. A public company, having not more than fifty members at the time of conversion, may be converted into a private one by passing a special resolution altering its articles so as to exclude provisions, if any, in the articles of association applicable to public company and include therein provisions applicable to a private company.
  2. If the company has secured creditors, their written consent shall have to be obtained before passing a resolution as per provision of sun-section (1) and the shares enlisted with the Stock Exchange shall have be delisted.

According to Section 87 (2) of the Companies Act 1994, “A resolution shall be a special resolution when it has been passed by such a majority as is required for the passing of an extraordinary resolution and at a general meeting of which not less than twenty-one days’ notice specifying the intention to propose the resolution as a special resolution has duly been given: provided that if all the members entitled to attend and vote at any such meeting so agree, a resolution may be proposed and passed as a special resolution at a meeting of which less than twenty-one days’ notice has been given.” Again Section 87 (1) suggests that “An extraordinary resolution has to be passed by a majority of not less than three-fourths of such members entitled to vote as are present in person or by proxy.” That means a special resolution requires two criteria: (i) twenty-one days’ notice for the general meeting specifying the intention to propose the resolution as a special resolution & (ii) resolution has to be passed at the general meeting by a majority of not less than three-fourths of such members who are entitled to vote as are present in person or by proxy.

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