Definition of a private company is given under section 3(i)(iii) as follows:
Private company means a company which has a minimum paid up capital of one lakh rupees and which by its articles (a) Restricts the right to transfer its shares
(a) Limits the number of its members to 50, excluding Employee member and ex-employees.
(b) Prohibits issue of its shares or debenture to the public.
(c) prohibits acceptance of deposits from persons other than its members, directors or their relatives.
According to section 43 of the companies Act, 1956 if a private company makes default in complying with any of the above mentioned conditions, the company shall become a private company, provided that the Central Government may on the application of the company, on such consequences as aforesaid.
If a private company is converted into a public company, it will have to make the following consequential changes:
- Change name clause of memorandum of association by deleting the word private from its name.
- Increase authorized capital and paid up capital up to Rs. 5 Lakhs, if it is less than this amount
- Increase its directors to three
- Increase its numbers of members, to seven.
- Delete those clauses from articles which are not suitable for a public company.
- Give notice to ROC.
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