Under the Companies Act, 2013 of India, a private company can be considered a public company in the following circumstances:
- Conversion by Choice: If a private company voluntarily decides to convert itself into a public company, it can do so by altering its Articles of Association in accordance with the provisions laid down in the Companies Act, 2013. This usually requires a special resolution passed by the shareholders.
- Default Status: A private company will be considered a public company by default if it fails to comply with the essential requirements of being a private company. These requirements include restrictions on the right to transfer shares, a limit on the number of members (not more than 200), prohibition on inviting the public to subscribe to its shares or debentures, etc.
- Holding and Subsidiary Relationship: If a private company becomes a subsidiary of a public company, then regardless of its Articles of Association, it will be considered a public company.
- Consequence of Non-compliance: A private company will be treated as a public company if it fails to comply with the specific provisions of Section 2(68) of the Companies Act, 2013, which defines the characteristics of a private company.
- By Order of the Central Government: If the Central Government declares any private company to operate as a public company on account of fraud or any misfeasance or wrongful act committed by the company, then the private company shall be considered as a public company for such period as may be specified in the order.
What is a Private Company as per the Indian Companies Act, 2013?
According to the Companies Act, 2013 of India, a private company is defined under Section 2(68). As per the act, a private company means a company which:
- Restricts the right to transfer its shares.
- Except in case of One Person Company, limits the number of its members to 200, excluding its employees and ex-employees who are members and their families.
- Prohibits any invitation to the public to subscribe for any securities of the company.
In other words, a private company does not offer or trade its company stock (shares) to the general public on the stock market exchanges, but rather the company’s stock is offered, owned and traded or exchanged privately or over-the-counter.
The requirements listed here are the minimum criteria to be considered a private company under the Act. Companies can have additional stipulations in their articles of association as long as they don’t conflict with the requirements of the Act.
What is a Public Company as per the Indian Companies Act, 2013?
According to the Companies Act, 2013 of India, a public company is defined under Section 2(71). As per the act, a public company means a company which:
- Is not a private company.
- Has a minimum paid-up share capital as may be prescribed, provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be a public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles.
So, a public company is one that is not a private company and meets the minimum paid-up share capital requirements. These companies can sell shares to the general public and may be listed on a public stock exchange. The Act does not prescribe a minimum paid-up capital for public companies, which was removed with the Companies (Amendment) Act, 2015.