CONVERSION OF PRIVATE COMPANY INTO PUBLIC COMPANY

Introduction

A private company enjoys several privileges under the Companies Act, such as fewer compliance requirements, limited disclosure obligations, and restrictions on public participation. However, these benefits are granted with the expectation that the company will strictly adhere to the conditions prescribed for private companies.

To prevent misuse of these privileges, the law clearly provides that under certain circumstances, a private company shall be treated as a public company, even if it has not formally changed its name or registration status. This ensures transparency, accountability, and protection of public interest.

This article explains when and how a private company becomes a public company, along with illustrations and the legal procedure involved.

Meaning of Deemed Public Company

A private company may lose its private status and be deemed to be a public company by operation of law. This means that even without voluntarily converting itself, the company will be subject to all provisions applicable to public companies.

The Companies Act recognizes multiple situations in which this transformation can occur.

Circumstances When a Private Company Becomes a Public Company

1. Voluntary Conversion by Alteration of Articles

A private company may intentionally convert itself into a public company when it seeks expansion, external funding, or greater market credibility.

To do so, the company must:

• Alter its Articles of Association by removing the three fundamental restrictions applicable to private companies, namely:
  
  • Restriction on transfer of shares
    
  • Limitation on the number of members
    
  • Prohibition on inviting the public to subscribe to securities
    
• Increase the minimum number of members and directors as required for a public company
  
• Comply with statutory filing requirements with the Registrar of Companies (ROC)
  

Illustration:
ABC Pvt. Ltd. plans to raise capital from the public. It amends its Articles, removes restrictions on share transfer, and issues a prospectus. Upon compliance with legal formalities, it becomes ABC Ltd., a public company.

2. Automatic Conversion Due to Non-Compliance with Private Company Conditions

The law is strict when it comes to compliance. If a private company violates any statutory condition, it automatically loses its private status.

A private company will be treated as a public company if it:

• Exceeds the maximum limit of 200 members, or
  
• Invites the public to subscribe to its shares or debentures, whether directly or indirectly
  

This conversion is automatic and does not require the company’s consent.

Illustration:
A private company publishes an online advertisement inviting the general public to invest in its shares. Such an act is considered a public invitation, and the company is deemed to be a public company, regardless of its registered name.

3. When a Private Company Becomes a Subsidiary of a Public Company

Under the Companies Act, if a private company becomes a subsidiary of a public company, it is legally treated as a public company.

Even if:

• The subsidiary continues to use “Private Limited” in its name, and
  
• Its Articles still contain private company restrictions
  

…it must comply with all provisions applicable to public companies.

Illustration:
XYZ Pvt. Ltd. becomes 60% owned by Alpha Ltd., which is a public company. As a result, XYZ Pvt. Ltd. is deemed to be a public company for legal and regulatory purposes.

4. Conversion by Operation of Law (Merger or Amalgamation)

In certain corporate restructuring scenarios, conversion happens automatically by law.

If:

• A private company merges into a public company, or
  
• An amalgamation results in a public company entity
  

…the resulting company will be treated as a public company without any separate conversion process.

This ensures consistency in compliance and governance standards.

Procedure for Conversion of a Private Company into a Public Company

When conversion is voluntary, the company must follow a structured legal process:

1. Board Resolution
   The Board of Directors approves the proposal for conversion and alteration of Articles.
   
2. Special Resolution
   Shareholders pass a special resolution in a general meeting to amend the Articles of Association.
   
3. Filing with Registrar of Companies
   Required forms such as MGT-14 and INC-27 are filed along with prescribed fees.
   
4. Issue of Fresh Certificate of Incorporation
   After verification, the ROC issues a new Certificate of Incorporation, confirming the company’s public status.

Legal Impact of Conversion

Once a private company becomes a public company:

• It is subject to stricter compliance requirements
  
• Disclosure and transparency obligations increase
  
• Restrictions on share transfer no longer apply
  
• Regulatory oversight becomes more extensive
  

Failure to comply with these requirements can attract penalties and legal consequences.

Conclusion

A private company does not remain private merely by its name. It may become a public company voluntarily, by violating statutory conditions, by becoming a subsidiary of a public company, or through corporate restructuring.

The law ensures that companies enjoying public participation or public control are governed by higher standards of transparency and accountability. Therefore, companies must carefully evaluate their structure, compliance status, and future plans to avoid unintended conversion and legal exposure.