Conversion and Distinction of Company Forms Explained

Understand Conversion and Distinction of Company Forms

Key rules to remember

Alteration of articles (Section 14(1))

Special resolution + subject to Act and memorandum conditions

This route covers private to public and public to private conversion.

Public to private conversion

Special resolution + approval by order of the Central Government

Under the second proviso to Section 14(1), the alteration is not valid unless the Central Government approves it by order.

Automatic cessation of private status

Articles no longer contain private company restrictions ⇒ ceases to be private company from the date of alteration

First proviso to Section 14(1).

Filing after alteration (Section 14(2))

Alteration + copy of Central Government order (where applicable) + printed altered articles, to Registrar within 15 days

Registrar registers it. Under Section 14(3), the registered alteration is valid as if it were originally in the articles.

Section 374 obligations of companies seeking registration under that Part

Secured creditors' consent or no objection + newspaper notice (one English, one vernacular) + affidavit from all members or partners + other prescribed conditions

The affidavit must say that the documents needed for dissolution of the earlier entity will be submitted to the authority with which it was registered. An LLP registered as a company under that Part is deemed dissolved under its Act without any further act or deed.

Inter-State co-operative to Producer Company (Section 378J)

Special resolution of not less than two-thirds of total members + application to Registrar; Registrar certifies within 30 days of receipt

The name must include the words 'Producer Company Limited'.

Re-conversion of Producer Company (Section 378ZS)

Application to Tribunal, either after a resolution by not less than two-thirds of members present and voting, or on request of creditors representing three-fourths of the value of total creditors ⇒ Tribunal directs a meeting of members or creditors ⇒ majority in number representing three-fourths in value of those present and voting agree ⇒ Tribunal sanctions ⇒ certified copy of order filed with Registrar

Applies to a Producer Company that is an erstwhile inter-State co-operative society. The application alone does not re-convert the company. The sanction binds all members and creditors and the company, but the order has no effect until the certified copy is filed with the Registrar. Within six months of sanction, the company must apply under the Multi-State Co-operative Societies Act, 2002 or other applicable law for registration, and file a report with the Tribunal and the Registrars concerned.

How to solve Conversion and Distinction of Company Forms questions

1. 1Read the question and decide whether it asks for a distinction, a procedure, or a validity opinion.
2. 2For a distinction, list the same heads for every form: how formed, legal personality, liability, perpetual succession, transfer of interest, governing law, number of members.
3. 3Write one point per head and state the difference in a short sentence. Do not write general descriptions.
4. 4For a conversion, name the provision first, for example Section 14 for private to public.
5. 5State the steps in order. In practice the board first approves the proposal and calls the general meeting, but this is a practice step and Section 14 does not require it. The statutory steps are: special resolution, the Central Government's order (only for public to private), and filing with the Registrar within fifteen days under Section 14(2).
6. 6Apply the facts given in the question, for example whether the articles still contain private company restrictions.
7. 7End with a clear conclusion in one line, such as 'the conversion is valid' or 'the company has ceased to be a private company'.

Quickest way: Heads-and-section method

Common mistakes in Conversion and Distinction of Company Forms

• Treating an LLP as a company governed by the Companies Act, 2013.

  Both have separate legal personality and limited liability, so they look alike.

  Fix: State that an LLP is a body corporate under the LLP Act, 2008. Apply the Companies Act only when the LLP seeks registration as a company. Section 374 sets the obligations for that registration, and the LLP is deemed dissolved on registration.

• Writing that a public to private conversion needs only a special resolution.

  Students remember the first part of Section 14(1) and miss the second proviso.

  Fix: Add that the alteration is not valid unless approved by an order of the Central Government.

• Saying that a partnership firm has perpetual succession.

  Students confuse the firm's continuing business with legal succession.

  Fix: State that a firm has no separate personality from its partners. A company has perpetual succession.

• Calling a HUF or a co-operative society a company.

  Both are 'associations', so students group them with companies.

  Fix: A HUF arises from Hindu law and family status. A co-operative society is registered under co-operative law. A co-operative society is not formed under the Companies Act, 2013, though an inter-State co-operative society may register as a Producer Company under Section 378J. A HUF has no such route.

• Forgetting the fifteen-day filing and printed copy of altered articles.

  Students stop after the resolution.

  Fix: Always add Section 14(2): file the alteration, the order (where applicable) and a printed copy of the altered articles with the Registrar within fifteen days.

Worked examples