convert to public ltd company

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 October 2010 hello Friends,
My client is a private ltd company, he needs to convert the same to Public ltd & also needs to go to public issue, can any one guide me the steps for the same ? thanks

CA Sanat Pyne

CA Sanat Pyne (Expert)
Follow

13 October 2010 Whenever it is proposed to convert a private limited company into a public limited company, the following steps are involved:—
(a) The Board of directors of such private limited company shall accord their approval to the proposal of such conversion;
(b) A General meeting of the shareholders be called to get approval of the members by means of a special resolution to delete the conditions as per section 3(1)(iii) of the Companies Act, 1956 in the Articles of Association and also to modify the Articles in other respects and also to delete the word "Private" from the name of such company; (Specimen of Special Resolutions given in Appendix 4)
(c) After passing of special resolution by the shareholders in general meeting, a certificate copy of the special resolution together with the explanatory statements and amended copy of the Memorandum and Articles shall be filed with the Registrar of Companies within 30 days of the passing of the said resolution in e-Form 23;
(d) Request the Registrar of Companies to delete the word "Private" from the Company's name Upon this, the Registrar of Companies shall issue fresh certificate of incorporation consequent to such conversion;
(e) In terms of section 44 of the Companies Act, 1956, if a private company alters its articles in such a manner that they no longer include the provisions under section 3(1)(iii) which are required to be included in the articles of in order to constitute it a private company, the company as on the date of the alteration shall cease to be a private company and within a period of 30 days after the said date shall file with the Registrar of Companies either a prospectus or a statement in lieu of prospectus;
(f) It has to be ensured that number of members shall be at least seven and directors at least three at the time of conversion

Querist : Anonymous

Querist : Anonymous (Querist)

13 October 2010 Thanks a ton Mr. Sanat for your quick reply, can you also guide me the procedure to go to public issue after converting it to Public company & the guidelines for an existing Private Ltd Company ( of 10 years with turnover of avg 2.5 crore p.a) to go in public issue

Upgrade to CAclubindia Pro. Subscribe Now!

CA Sanat Pyne

CA Sanat Pyne (Expert)
Follow

13 October 2010 Any company or a listed company making a public issue of value of more than Rs 50 lakhs is required to file a draft offer document with SEBI for its observations. The company can proceed further only after getting observations from SEBI. The company has to open its issue within three months from the date of SEBI's observation letter.

Through public issues, SEBI has laid down eligibility norms for entities accessing the primary market. The entry norms are only for companies making a public issue (IPO or FPO) and not for listed company making a rights issue.

The entry norms are as follows
Entry Norm I (EN I): The company shall meet the following requirements

* Net Tangible Assets of at least Rs. 3 crores for 3 full years.
* Distributable profits in atleast three years.
* Net worth of at least Rs. 1 crore in three years.
* If change in name, atleast 50% revenue for preceding 1 year should be from the new activity.
* The issue size does not exceed 5 times the pre- issue net worth.

SEBI has provided two other alternative routes to company not satisfying any of the above conditions to provide sufficient flexibility and also to ensure that genuine companies do not suffer on account of rigidity of the parameters, for accessing the primary Market. They are as under

Entry Norm II (EN II)

* Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs).
* The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years.

OR
Entry Norm III (EN III)

* The "project" is appraised and participated to the extent of 15% by FIs/Scheduled Commercial Banks of which at least 10% comes from the appraiser(s).
* The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years.
Note :- The company should also satisfy the criteria of having at least 1000 prospective allotees.

The following are exempted from the ENs

* Private Sector Banks
* Public sector banks
* An infrastructure company whose project has been appraised by a PFI or IDFC or IL&FS or a bank which was earlier a PFI and not less than 5% of the project cost is financed by any of these institutions.