Types of Companies and Conversion of Entities
Types of Companies and Conversion of Entities
The exam tests classification under the Companies Act, 2013 and the procedure for converting one form into another without dissolving the entity.
Core rules
- Private company: restricts transfer, limits members to 200 (excluding employees), prohibits public invitation. Public company: minimum 7 members, no maximum.
- OPC: one member, one nominee; small company: paid-up capital ≤ ₹4 crore and turnover ≤ ₹40 crore, not a public/holding/subsidiary/Section 8 company.
- Section 14 conversion: private to public needs special resolution and altered AOA/MOA; public to private needs special resolution plus Regional Director approval. Conversion does not affect liabilities or create a new legal entity.
- OPC must convert within 6 months if it ceases to satisfy OPC conditions; voluntary conversion is permitted by altering MOA/AOA.
Worked example
A private company has 201 members after an employee stock transfer to outsiders. It exceeds the private company ceiling. It must either reduce membership or convert to public under Section 14 by special resolution and ROC filing; until then it cannot claim private company exemptions.
Traps
Employees are excluded from the 200-member count only in prescribed cases, not all. Small company thresholds are revised; use current limits. Public-to-private conversion is not merely a board decision. Conversion does not transfer property afresh.