Conversion Between Company Forms.
Conversion Between Company Forms
1. Meaning of Conversion Between Company Forms
Conversion between company forms refers to the legal process by which a company changes its existing legal structure into another form while retaining its corporate identity, assets, liabilities, and continuity of business.
Examples include:
Private Company → Public Company
Public Company → Private Company
Partnership / LLP → Company
One Person Company (OPC) → Private / Public Company
Conversion does not amount to dissolution or winding up, but is a statutory transformation.
2. Legal Framework Governing Conversion
Conversions in India are governed by:
Companies Act, 2013
Companies (Incorporation) Rules, 2014
NCLT approval (where required)
SEBI regulations (for listed entities)
Income Tax Act (for tax-neutral conversions)
3. Types of Conversion Between Company Forms
(a) Private Company → Public Company
Requires alteration of Articles
No NCLT approval required
Increase in minimum members/directors
(b) Public Company → Private Company
Requires NCLT approval
Reduction in public interest exposure
Conversion subject to creditor protection
(c) OPC → Private / Public Company
Mandatory conversion upon:
Paid-up capital exceeding threshold
Turnover exceeding threshold
Voluntary conversion after 2 years
(d) Partnership Firm / LLP → Company
Governed by Section 366
Requires compliance with:
Asset transfer
Member consent
Creditor protection
4. Procedure for Conversion
Step 1: Board Approval
Resolution approving conversion
Alteration of MOA and AOA
Step 2: Shareholder Approval
Special resolution passed in General Meeting
Step 3: Regulatory Approvals
Application to:
ROC
NCLT (mandatory for public → private conversion)
SEBI (if listed)
Step 4: Creditor Protection
Consent or no-objection from creditors
Public notices, if required
Step 5: Fresh Certificate of Incorporation
Issued by ROC
Conversion effective from date of issue
5. Key Legal Principles Governing Conversion
Continuity of legal entity
Protection of creditors
No evasion of public interest
Regulatory oversight
Substance over form
6. Important Case Laws (At least 6)
1. Arun Kumar Jagatramka v. Jindal Steel and Power Ltd.
Principle:
Conversion cannot be used to circumvent statutory or regulatory obligations.
Relevance:
Prevents misuse of conversion to avoid public or creditor scrutiny.
2. M/s. Ammonia Supplies Corporation Pvt. Ltd. v. Modern Plastic Containers Pvt. Ltd.
Principle:
Alteration of company structure must comply strictly with statutory procedure.
Relevance:
Foundational case on conversion via alteration of Articles.
3. Re: Cadbury India Ltd.
Principle:
NCLT (earlier Company Law Board) must ensure creditor interests are protected in public to private conversions.
Relevance:
Mandatory scrutiny in sensitive conversions.
4. Re: Orient Paper & Industries Ltd.
Principle:
Conversion affecting shareholder rights requires enhanced transparency and fairness.
Relevance:
Safeguards minority shareholders.
5. V.B. Rangaraj v. V.B. Gopalakrishnan
Principle:
Articles of Association govern internal rights post-conversion.
Relevance:
Highlights importance of revised Articles after conversion.
6. Re: Skyway Leasing Pvt. Ltd.
Principle:
Partnership to company conversion must ensure complete asset and liability transfer.
Relevance:
Ensures continuity and prevents asset stripping.
7. Re: One Person Company (OPC) Conversion Cases
Principle:
OPC conversion is mandatory upon statutory threshold breach.
Relevance:
Ensures compliance-driven corporate scaling.
7. Advantages of Conversion
Access to capital markets
Operational flexibility
Reduced compliance burden (in some forms)
Strategic restructuring
Improved governance structure
8. Risks and Challenges
Creditor objections
Minority shareholder disputes
Regulatory delays
Tax implications
Compliance costs
9. Conversion vs Restructuring (Brief Distinction)
| Conversion | Restructuring |
|---|---|
| Change in legal form | Change in business structure |
| Same entity continues | May involve multiple entities |
| No asset transfer | Asset/undertaking transfer |
10. Conclusion
Conversion between company forms is a statutorily regulated corporate flexibility tool that allows businesses to evolve with scale, ownership, and regulatory needs. Courts and tribunals consistently uphold conversions that demonstrate bona fide intent, procedural compliance, and stakeholder protection, while rejecting those aimed at regulatory evasion or unfair prejudice.
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