Pvt. Ltd to Public Ltd.

This query is : Resolved

CS Sandip Rahane (Querist)
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18 August 2010 Dear Experts,
I want information regarding conversion of pvt. ltd company to public ltd.
I know the all procedure under the Companies Act, 1956 (ROC procedure). I wnt information as above :
1) How to issue the shares for Public?
2) At wht price? How to calculate/ fix the price of shares?.
3) Is the company hv to issue prospectus?
4) Other procedure other than ROC if any.

with thnks

CA Sanat Pyne

CA Sanat Pyne (Expert)
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18 August 2010 Conversion of a Private Limited Company into Public Limited
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.
2. Steps involved for change in the name of a company
The procedure for altering name clause of Memorandum and Articles of Association of the company is being given herein under:
2.1 Decision to be taken for change in name by the Board
The Board of directors of a company should first consider the need and reason for changing name of the company. The decision should be thoughtful and satisfying to the approving authorities. An existing company may change its name by a new name for many reasons like:—
(a) the new name is corresponding to a new business which it has proposed to undertake or started undertaking;
(b) a company, which has been carrying on its business for a long time and has established a standing in the market, may decide to shorten its name and may like to be known by its abbreviated name as for example "IFCI Ltd." in place of Industrial Finance Corporation of India Ltd., etc. (see Department's clarification given in Appendix 1).
2.2 Seeking availability of the proposed new name from the Registrar of Companies
The Board shall authorise the secretary or any of the director of the company to make an application in e-Form 1A along with necessary filing fee of Rs. 500 to the Registrar of Companies for getting his confirmation regarding availability of the proposed new name. Application in respect of addition or
deletion of "Private" is required is also required to be submitted electronically in e-Form 1A. E-Form 1A should be filled in the manner as given in Appendix 5. The Registrar shall intimate the applicants about the status of availability of name. The Registrar's confirmation of availability of name shall be valid for six months.
2.3 Approval of members in general meeting
On obtaining confirmation of the Registrar regarding the availability of proposed new name, the Board shall convene a general meeting of members as per the provisions of Companies Act, 1956 for the purpose of obtaining approval by way of special resolution for effecting change in the name of the company u/s 21. (Specimen of special resolution has been placed in Appendix 6).
The resolution so passed shall be subject to approval of the Central Government (powers have been delegated to the Registrar of Companies).
Since the change in name of the company also requires amendment in various documents of the company viz., Memorandum and Articles of Association, letter head, invoices, etc., it is advisable to pass special resolutions for alteration of respective clauses of Memorandum and Articles of Association and the Board shall have general authority to make necessary corrections in all the documents wherever it is required to reflect the new name of the company.
2.4 Filing of e-Form 23 to the Registrar
The Company shall also file certified copy of the special resolution and the explanatory statement electronically with the Registrar within 30 days of passing of the resolution pursuant to section 192 in e-Form 23. (See Appendix 7)
2.5 Application to be made in e-Form 1B and approval by the Registrar u/s 21
An application in e-Form 1B u/s 21 of the Act is to be made to the Central Government (powers delegated to the Registrar) electronically for approval of change of name of the company. (Specimen of application has been given in Appendix 8) alongwith fee as per the Companies (Fees on Application) Rules, 1999 either, in cash or by demand draft.
The Registrar of Companies shall consider and scrutinize the application for change in name on various grounds like:—
(a) the company has furnished sufficient reasons for change in name and that the proposed change in the name is in consonance with the principal objects of the company;
(b) that the proposed name is not undesirable as per the guidelines announced by the Government;
(c) that if the company has applied for abbreviated name, the company is well established and has a reputation in the market.
On being satisfied the Registrar shall accord his approval for the change in name and shall issue a certificate of such effect.
3. Powers of the Central Government for rectification of name of an existing company
In case if the name of a company on its registration or on registration with changed name, it has come to the knowledge of the company or if in the opinion of the Central Government the name of the company is identical or closely resembles the name of a company which is already in existence, such company on the knowledge of the facts itself or by the Central Government, may be asked by the Central Government to change the name within 12 months of incorporation or change in the name of the company as the case may be. In either case, all the formalities described earlier shall be taken as under:—
(a) apply to the Registrar in e-Form 1A alongwith fee of Rs. 500 for confirmation of availability of name;
(b) the Board of directors will accord its approval, subject to other approvals by the RBI/Stock Exchange, etc., to change the name. The Board will also fix the date and time for a general meeting and will approve the notice to be sent to the members. The Board will also authorise the Secretary to take all necessary actions in the matter;
(c) after getting the approval of the members by an ordinary resolution, the company shall apply to the Regional Director in e-Form 24A, to whom power is delegated under section 22, for obtaining approval for the change in name. The required fees shall also be paid as per the Companies (Fees on Application) Rules, 1999; (Appendix 9)
(d) after receiving the approval from the Regional Director, apply to the Registrar for issuance of a fresh certificate of incorporation.
3.1 Rectification and adoption of name of a company
In case if the name adopted by a new company is not innocent and the name adopted was sufficiently closed to the name under which the existence companies was trading, acquired a reputation and the public at large, likely to be mislead that the existing company's business was the business of new company, the Department may pass an order for a new company to change its name. [Montari Overseas Ltd. v Montari Industries Ltd. (1996) 20 CLA 313 (Del)].
3.2 Expiry of limitation period
When the limitation prescribed by the statute for rectification of name of company under section 22(1)(b), had expired, it would not be open for the Court to extend the same by exercising the powers under article 226 of the Constitution of India. [Sidhvi Constructions (India) (P) Ltd. v Registrar of Companies (1997) 24 CLA 207 (AP)].
Period covered by order of injunction is liable to be excluded while computing period of 12 months laid down in section 22(1)(b). [Sen and Pandit Electronics (P) Ltd. v Union of India (2003) 115 Comp Cas 299 (Cal)].
4. Scope of sections 20 and 22
Section 22 has a limited application and the said section must be read along with section 20. In terms of the latter provisions a company may not be registered if in the opinion of the Central Government the name by which a company in existence has been previously registered is identical with or too nearly resembles the name of the applicant. In such an event, refusal to register the name of the company on the part of the Central Government would come within the purview of the element of undesirableness to register the company in such name
Section 22, however, is applicable where such registration has already been made. Thus at the first instance, a company which has already been registered cannot be said to be undesirable for the purposes of registration within the meaning of section 20. By reason of section 22, however, the Central Government has been authorised to rectify its mistake, which might have been committed by it by way of inadvertence or otherwise. [Kalpana Polytec India Ltd. v Union of India (2001) 106 Comp Cas 558 (Cal)].
In exercise of power u/s 22, since final order passed results into civil consequences, order must be passed by observing principles of natural justice. [Pino Bisazza Glass (P) Ltd. v Bisazza India (2003) 43 SCL 666 (Guj)].
Provisions of sections 20 to 22 do not exclude right of a person adversely affected to maintain an action in passing off and adoption of a corporate name by a company is liable to be tested on the same principles as are applied to an action in passing off. Though sections 20 to 22 of the Act make provision for companies not to be registered with the undesirable names, change of name by company and rectification of the name of the company, these provisions do not exclude the right of a person adversely affected to maintain an action in passing off. Such action is founded on civil right of the aggrieved party having been wronged. Wherever there is a wrong, there is a remedy.
A company incorporated in 1993 in the name of Montari Overseas Ltd., entered in the capital market with a public issue. Another company incorporated in 1983 in the name of Montari Industries Ltd., filed suit for mandatory injunction for direction to the defendant company to suitably change its corporate name so as to exclude therefrom the word 'Montari'.
The Court held that the plaintiff had made out a strong prima facie case for the grant of an ad interim injunction. Balance of convenience was in favour of the plaintiff. The plaintiff was sure to suffer an irreparable injury if not protected. It may be difficult to estimate the loss, which the plaintiff may suffer in
the absence of ad interim relief. The defendant was restrained during the hearing of the suit for using the word 'Montari' or any other word deceptively similar with or likely to cause confusion that 'Montari' was a part of its corporate name. [Montari Overseas Ltd. v Montari Industries Ltd. (1996) 7 SCL 102 (Delhi)].
5. Change in the name shall not affect legal proceedings by or against the company
It is provided in section 23 that change of name in the company shall not affect any rights or obligations of the company. Any legal proceedings, which might have commenced in the former name, shall be continued with the new name. [Pioneer Protective Glass Fibre (P) Ltd. v Fibre Glass Pilkington Ltd. (1986) 60 Comp Cas 707 (Cal)].
Where a company has power to execute a decree in its old name, it has got a right even after change of name to execute decree in new name. [D. Srinivasaiah v Vellore Varalakshmi Bank Ltd. (1954) 24 Comp Cas 55 (Mad)] If name of company is changed after a decree is passed, decree can be executed in new name. [F.S. Abdul Qayum v Manindra Land & Building Corpn. Ltd. (1955) 25 Comp Cas 143 (All)].
6. Imposition of fresh stamp duty by Collector of Stamps
Only because name of lessee company was changed and consequent thereto supplementary lease agreement was executed, it could not be said that company under new name was totally different from company under old name and fresh transaction took place attracting payment of stamp duty. [Prasad Technology Park (P) Ltd. v Sub-Registrar (2006) 66 SCL 203 (SC)].
7. Special conditions to be complied with by Non-Banking Financial Company for change in name
As per guidelines issued by the Reserve Bank of India, the Non-Banking Financial Companies are required to seek approval of the Reserve Bank of India for change in their names reflecting to non-banking business to other business activities. Therefore, the Registrar of Companies shall require the "No Objection Letter" from the RBI before confirming availability of name desired by a company seeking change in its name.
Such companies are required to submit an application alongwith reason for change in name, copy of the Board resolution, auditors' certificate that the company has not accepted any deposit from the general public, future business plans, etc., to the Reserve Bank of India at their Regional Office, where the registered office of the company is situated. (Specimen of the application given in Appendix 10)
On obtaining the required "No Objection Letter" from the Reserve Bank of India, the same is required to be submitted to the Registrar for taking suitable decision for availability of name and change in the name of the company thereto.
8. Disclosures requires to be given by Listed Companies on change in name
SEBI vide Circular dated 26-4-1999 has provided that listed companies which change their name shall disclose the turnovers and income from such new activities is required to be submitted in quarterly/annual statements. They were further required to make such disclosures for a period of three years. SEBI has by its Circular dated 30-4-2004 (Appendix 2) stated that all listed companies which decide to change their names shall be required to comply with the following conditions:
(a) Atleast a period of one year should have elapsed from the last name change.
(b) Atleast 50% of its revenue in the last one year should have been accounted by the new activity.
(c) The new name alongwith the old name shall be disclosed through the websites of the concerned Stock Exchanges and also through the EDIFAR website for a continuous period of one year from the date of change.
Appendix 1
Department's clarification for use of abbreviated name
Circular No. H/93, dated 31-3-1993 issued by the Department of Company Affairs:
"I am directed to refer to Guideline No. 14A circulated vide this Department's Circular No. 27/1/87-CL.III, dated 27-5-1988 and replace the same as under:
"14A. Where the existing companies are stated and found to be well known in the respective fields by their abbreviated names, these companies may be allowed to change their names, by way of the abbreviation, with the prior approval of the Central Government. ( power has been delegated to the Registrars of Companies)."
Change in name will also become necessary to delete or add the word "Private" to the name which does not require approval of the Central Government except that the approval of the "Central Government" will first be taken for conversion of a public company into a private company as discussed in the Chapter.

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CA Sanat Pyne

CA Sanat Pyne (Expert)
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18 August 2010 Special resolution for conversion of private limited company into public company
RESOLVED THAT pursuant to the provisions of section 31, 44 and other applicable provisions of the Companies Act, 1956 the status of the Company be and is hereby converted from PRIVATE LIMITED into PUBLIC LIMITED Company.
FURTHER RESOLVED THAT pursuant to the provisions of the Companies Act, 1956 the name of the Company be and is hereby changed from KW PRIVATE LIMITED to KW LIMITED by deletion of the word 'Private' before the word Limited in the name of the Company and necessary corrections in the name Clause of the Memorandum And Articles of Association and all such other papers, documents and matters be made to give effect of the changed name accordingly.
II. Special resolution for adoption of new set of articles
RESOLVED THAT the a new set of Articles of Association incorporating the provisions applicable to the Public Limited Companies as placed before the Meeting be and is hereby substituted and adopted in the place of the existing Articles of Association of the Company.
Explanatory statement Item No. …. To …
The Company was incorporated on 7th Sept. 1987 as a Private Limited Company which put some restrictions of the Company and limiting its scope for its working. The Board of directors of the Company considered that looking into the expanded business activities the Company should be converted into a Public Limited Company to get confidence of the public as a whole.
As per the provisions of Section 21, 31, 44, and other applicable provisions of the Companies Act, 1956 consent of the Members is required by way of Special Resolution to convert the Company from Private Limited to Public Limited. Therefore your Directors recommend the resolution for approval as a Special Resolution as set out under item no. … to … to of the Notice of the Meeting. Item No. ….
The existing Articles of Association of the Company are limiting the working of the Company as the Articles includes the clause which are restricting the operations of the Company including therein the restrictive provisions of section 3(1)(iii) and other provisions of the Companies Act, 1956. In view of the change in the status of the Company into the Public Limited and to incorporate the provisions of the Companies Act, 1956, your directors proposes to substitute the set of the existing Articles of Association with the new set of the Articles of Association.
As per the provisions of section 31 and other applicable provisions of the Companies Act, 1956 consent of the Members is required by way of Special Resolution to alter or adopt a new set of Articles of Association of the Company. Therefore, your Directors recommend the resolution for approval as a Special Resolution as set out under item….
A copy of the amended Memorandum of Association and new set of Articles of Association along with the existing Articles of Association of the Company is available for inspection, which can be inspected at the Registered Office of the Company during working hours on any working day.

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