Conversion of a company into limited by shares

Ministry of Corporate Affairs notified by notification G.S.R. 936(E) on 1^st October 2016 the Companies (Incorporation) Fourth Amendment Rules, 2016 amending the Companies (Incorporation) Rules, 2014 with effect from date of publication in official gazette means 1^st October 2016. New rule 39 is being inserted with effect from 1^st November 2016.

In this blog post we will discuss new rule 39.

Conversion of company

According to sub – rule (1) of rule 39 of the Companies (Incorporation) Rules, 2014,   a company other than a company registered under section 25 of the Companies Act, 1956 or section 8 of the Companies Act, 2013 may convert itself into a company limited by shares.

Rule – heading of newly inserted rule 39 suggest that rule is applicable only for Conversion of a company limited by guarantee into a company limited by shares. But, sub – rule (1) suggest any company other than not for profit company may convert into a company limited by shares.

Rule 33 – conversion of a private company into a public company or vice versa

Rule 37 – Conversion of unlimited liability company into a limited liability company by shares or guarantee

Rule 39 – Conversion of a company limited by guarantee into a company limited by shares

Share of guarantee amount

According to sub – rule (2) of rule 39, the company seeking conversion shall have a share capital equivalent to the guarantee amount.

Special resolution

According to sub – rule (3) of rule 39, a special resolution is passed by its members authorising such a conversion omitting the guarantee clause in its Memorandum of Association and altering the Articles of Association to provide for the articles as are applicable for a company limited by shares.

In memorandum of a company limited by guarantee, there shall be a guarantee clause which read like this –

“Every member of the company undertakes to contribute:

(i) to the assets of the company in the event of its being wound up while he is a member, or within one year after he ceases to be a member, for payment of the debts and liabilities of the company or of such debts and liabilities as may have been contracted before he ceases to be a member; and

(ii) to the costs, charges and expenses of winding up (and for the adjustment of the rights of the contributories among themselves), such amount as may be required, not exceeding…………………………….rupees.”

In case of conversion of a guarantee into a company limited by share, this guarantee clause shall be replaced with liability clause –

“The share capital of the company is…………………………….rupees, divided into…………………………….shares of…………………………….rupees each.”

Further, a company limited by guarantee is govern by articles of association in line of Table G or Table H of schedule I of the Companies Act, 2013. On conversion such company shall replace its articles with a new set of articles in line of Table F of Schedule I.

Filing of special resolution

According to sub – rule (4) of rule 39, a copy of the special resolution shall be filed with the Registrar of Companies in Form no. MGT- 14 within thirty days from the date of passing of the same along with fee as prescribed in the Companies (Registration Offices and Fees) Rules, 2014.

Application for conversion

According to sub – rule (5) of rule 39, an application in Form No INC – 27 shall be filed with the Registrar of Companies within thirty days from date of the passing of the special resolution enclosing the altered Memorandum of Association and altered Articles of Association and 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 provided by its members.

For this purpose, Form INC – 27 is being substituted with a new form.

This application form need –

• Altered memorandum of association
• Altered articles of association
• List of members with paid – up share capital more than earlier guarantee amount.

Certification of incorporation

According to sub – rule (6) of rule 39, the Registrar of Companies shall take a decision on the application filed under these rules within thirty days from the date of receipt of application complete in all respects and upon approval of Form No INC – 27, the company shall be issued with a certificate of incorporation in Form No INC – 11B.

For this purpose, these amendment rules also inserted Form No INC-11A as certificate of Incorporation pursuant to conversion of a company limited by guarantee into a company limited by shares.