LCI Learning

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More

Sumeet Singh   25 August 2023

Incorporation of private company

A holding company, when it is a public company, any subsidery company thereafter of the holding company shall be deemed to be public company. But can 2 public companies incorporate a private company?



Learning

 3 Replies

T. Kalaiselvan, Advocate (Advocate)     25 August 2023

A Public company can also get converted into a private company by filing Form INC-27 subject to passing the special resolution and approval of the competent authority.

A company merger is when two companies combine to form a new company. Companies merge to expand their market share, diversify products, reduce risk and competition and increase profits.

A merger happens when two companies combine to form a single entity. Public companies often merge with the declared goal of increasing shareholder value, by gaining market share or from entering new business segments. Unlike an acquisition, a merger can result in a brand new entity formed from the two merging firms.

Dr. J C Vashista (Advocate )     26 August 2023

Your query pertain to "merger" of two public companies or creating a "holding" / "subsidiary"  company or converting a "public" company in to a "private" company", be clear ?

LCI Thought Leader Rajesh Tandon ( Col (Retd))     06 September 2023

Yes, two public companies can incorporate a private company. There is no law that prohibits two public companies from incorporating a private company. For example, Google, an LLC is a subsidiary company of Alphabet (public).

Section 7 of the Companies Act, provides the procedure for incorporation.

However, there are some considerations that the two public companies should take into account before incorporating a private company. These considerations include:

  • The purpose of the private company. The two public companies should have a clear purpose for incorporating a private company. The private company may be incorporated to carry out a specific project or to provide a specific service.
  • The ownership structure of the private company. The two public companies should decide how they want to own the private company. They may own the private company equally, or they may own different percentages of the private company.
  • The management of the private company. The two public companies should decide who will manage the private company. They may appoint a third party to manage the private company, or they may manage the private company themselves.

If the two public companies carefully consider these considerations, they can incorporate a private company that meets their needs.

Here are some additional things to keep in mind:

  • The private company will be a separate legal entity from the two public companies. This means that the private company will be responsible for its own debts and liabilities.
  • The private company will not be subject to the same level of regulation as a public company. This means that the private company will have more flexibility in how it operates.
  • The private company may be more difficult to sell or transfer than a public company. This is because the private company will not be listed on a stock exchange.

Overall, there are both pros and cons to incorporating a private company. The two public companies should carefully consider their needs before making a decision.


Leave a reply

Your are not logged in . Please login to post replies

Click here to Login / Register