Procedure for Conversion of Company Limited by Guarantee to Company Limited by Shares

Khushboo Sharma

Khushboo Sharma

Published on: Sep 29, 2023

Darshi Dave

Updated on: Sep 29, 2023

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Introduction:

• Company Limited by Guarantee refers to a company where the liability of the members, is limited to the amount that is guaranteed by them to contribute towards the company’s assets in the event of such company being wound up, by the Memorandum of Association (MOA).
• Company Limited by Shares refers to a company where the liability of its members is limited by the Memorandum of Association (MOA) up to the unpaid amount on the shares respectively held by them.

Any Company Limited by Guarantee desirous of converting itself into a Company Limited by Shares, may do so in accordance with the provisions of Rule 39 of the Companies (Incorporation) Rules, 2014.

Applicable Provisions:

1. Section 12, 15, 18, 96, 100, 173 of Companies Act, 2013
2. Rule 37, 39 of Companies (Incorporation) Rules, 2014

Mandatory Requirements:

1. Company shall pass a Special resolution in a duly convened General Meeting for the following:
   • converting itself into a Company Limited by Shares
   • omitting the guarantee clause in its Memorandum of Association (MOA)
   • alteration of Articles of Association (AOA).
2. Company Limited by Guarantee shall have a share capital equivalent to the guarantee amount.
3. Company shall obtain a certificate from its Auditors certifying its solvency and that it is a going concern as on the date of passing of Board resolution.

Procedure:

1. Convene a Meeting of Board of Directors [Section 173 & SS-1]:
   The Company shall convene a Meeting of its Board of Directors to pass a Board resolution for the following:
   • consider and approve the proposal of conversion into a company limited by shares
   • alteration in the Liability Clause of Memorandum of Association (MOA) of the Company subject to the approval of the Members of the Company
   • alteration of Articles of Association (AOA)
   • delegate authority to Company Secretary or any one director of the company to sign, certify and file the required form with Registrar of Companies (ROC) and to do all such acts and deeds as may be necessary to give effect to the conversion.
   Refer to the Procedure for Conducting Board Meeting, Procedure for Alteration of Articles of Association (AOA) for detailed procedure.
2. Convene General Meeting [Section 96, 100 & SS-2]:
   The Company shall convene a General Meeting of its Members to pass a Special resolution for approving the proposal of conversion into Company Limited by Shares.
   Refer to the Procedure for Conducting General Meeting for a detailed procedure.
3. File Form MGT-14 with Registrar of Companies (ROC):
   The Company shall file a copy of the Board Resolution and Special Resolution passed in its duly convened Board meeting and General meeting in Form MGT-14, within 30 days of passing such resolution along with the requisite documents and fees, with the Registrar of Companies (ROC).
4. Publish Notice for Proposed Conversion [Rule 37(2)]
   
   • The Company shall publish a notice in Form No. INC-27A w.r.t such proposed conversion in one English and in one vernacular language newspapers in the district where its registered office is situated within 07 days from the date of passing special resolution for the proposed conversion.
   • The Company shall also ensure the following:
     • Place the notice so published on the website specifying the proposal of conversion and probing objections if any from such persons who are interested in the affairs of the company and
     • Copy of the notice so published in the newspapers to the creditors and debentures holders as on the date of general meeting’s notice by registered post or speed post or through courier along with proof of dispatch
   • The notice shall also indicate that objections, if any may be intimated to the Registrar and company specifying the nature of interest and grounds of opposition within 21 days of the publication date.
5. File Application Form INC-27 with the Registrar of Companies:
   The Company shall file an application in Form No. INC 27, within 30 days of passing of special resolution for its conversion into a company limited by shares along with the prescribed fees and the following documents:
   • Notice of the general meeting along with explanatory statement
   • Copy of the resolution passed in general meeting
   • Copy of the newspaper publication
   • Altered e-Memorandum of Association and e-Articles of Association
   • A list of members with the number of shares held aggregating to a minimum paid up capital which is equivalent to the amount of guarantee hither to provide by its members
   • No Objection Certificate from such applicable sectoral regulator as may apply
   • No Objection Certificate from all secured creditors, if any.
   Note: The Company shall make the following declarations under Rule 37 of Companies (Incorporation) Rules, 2014, while filing Form INC-27 with the Registrar of Companies (ROC):
   1. Declaration signed by not less than 2 Directors of the Company including Managing Director, if any, that:
      • such conversion shall not affect any debts, liabilities, obligations or contracts incurred or entered into by or on behalf of the company before conversion (except to the extent that the liability of the members shall become limited)
      • no complaints are pending against the company from its members or investors and no inquiry, inspection or investigation is pending against the company or its directors or officers.
      • Full enquiry into the affairs of the Company has been made
      • Have formed an opinion that the list of creditors is correct
      • The estimated value as given in the list of debts or claims payable on a contingency are proper estimates of the values of such debts and claims and
      • There are no other debts or claims against the company to the best of their knowledge.
   2. Declaration and Certification by Professional that:
      • The Particulars filed under Form INC-27 are true, correct and complete and no information material has been suppressed therein.
      • The Company is eligible for conversion and does not attract any disqualification as specified under rule 8 of the Companies (Incorporation) Rules, 2014.
6. New Certificate of Incorporation:
   The Registrar of Companies (ROC), upon being satisfied that the application for conversion is complete in all respects, issue a certificate of incorporation in Form No. INC-11B.
7. Post Conversion Compliances:
   
   • Every Alteration made in the Memorandum or Articles of Association of the company shall be noted in every copy of the memorandum or articles as the case may be to give effect to the Conversion of Company Limited by Guarantee into a Company Limited by Shares. [Section 15(1)]
   • Every Company shall:
     • Print the Altered Memorandum and Articles of Association with new Certificate of Incorporation
     • Paint or affix its name, and the address of its registered office, and keep the same painted or affixed, on the outside of every office or place in which its business is carried on, in a conspicuous position, in legible letters, and if the characters employed therefore are not those of the language or of one of the languages in general use in that locality, also in the characters of that language or of one of those languages
     • Have its name engraved in legible characters on its seal, if any
     • Get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications
     • Have its name printed on hundis, promissory notes, bills of exchange and such other documents
     • Send the new address of registered office with all the Banks, authorities and other Basic Utility Service providers as applicable.
8. File Necessary Amendment Application under following Acts:
   • Goods and Services Act
   • Shops & Establishment Act
   • Factories Act
   • Inter-State Migrant Workmen Act
   • Private Security Agency Act
   • EPF and ESIC
   • Other Labor Laws
   • Industry Specific Laws.