Convert Guarantee Company into a Company with Shares

A Private Company Limited by Guarantee is defined under Section 2(21) read with Section 2(68) of the Companies Act, 2013 as a private entity where members' liability is limited to the guarantee amount they undertake to contribute upon winding up. Unlike Private Limited Companies, members don't hold equity shares but pledge guaranteed amounts, typically used for clubs, associations, or similar non-profit objectives.

Converting to a Private Limited Company enables profit distribution through dividends, equity fundraising from investors, employee stock options (ESOPs), access to venture capital, and a precise business valuation. Your company can pursue commercial objectives, distribute profits to shareholders, and attract investment while maintaining private company benefits, such as restricted share transfers.

No. Your company name remains the same as it already includes the "Private Limited" designation. However, suppose your current name reflects a non-profit nature (e.g., "Foundation" or "Association"). In that case, you may voluntarily change it later to reflect commercial objectives through a separate name change process under Section 13.

Current members in your guarantee company are individuals/entities who pledged the guarantee amount. Upon conversion, they automatically become shareholders receiving shares proportionate to their guarantee. For example, a member with a ₹10,000 guarantee in a company with a total guarantee of ₹1,00,000 gets a 10% shareholding.

As per Rule 39(2), your private guarantee company must: (a) Have or insert share capital clause in MoA equal to guarantee amount, (b) Not be a Section 8 company, (c) Have no pending ROC filing defaults, (d) No payment defaults on deposits/debentures/interest, (e) Pass Special Resolution with 75% majority voting.

Yes. Your company continues normal business operations throughout the 45-60 day conversion process. The conversion doesn't affect day-to-day operations; existing contracts remain valid, employees continue working, and bank accounts usually function—only the underlying structure changes upon receipt of the Form INC-25 certificate.

Conversion requires a Special Resolution passed by a 75% majority at EGM. Members holding 25% or less of the shares cannot block the conversion. Dissenting members must accept the decision but retain their proportionate shareholding rights. They can later transfer shares subject to Private Limited restrictions.

No minimum paid-up capital is mandated for Private Limited Companies. Your share capital must equal the total guarantee amount as per Rule 39(2). For example, if the total guarantee is ₹1,00,000, that becomes your share capital, which can be kept at this amount post-conversion.

You cannot proceed with conversion if you have unfiled annual returns (MGT-7) or financial statements (AOC-4)—first clear all defaults by filing pending forms with additional fees under Section 403. Obtain an updated compliance certificate from the Company Secretary before initiating the conversion process.

Form INC-27 is the statutory application for conversion filed electronically on the MCA portal. File within 30 days from the Special Resolution date with: altered MoA/AoA, member list with proposed shareholdings, CA certificate, Registered Valuer report, and directors' declaration. Late filing attracts additional fees.

Rule 39(5)(g) mandates a two-tier certification: the Registered Valuer provides an independent and fair valuation of assets and liabilities. CA in practice then certifies the company's solvency, confirms that assets exceed liabilities based on the Registered Valuer's report, and certifies that the company can meet its obligations for the next 12 months.

MoA alteration: Remove guarantee clause, insert share capital clause (Clause V), modify liability clause for shareholders, update objects clause for commercial activities. AoA replacement: Discard existing Table F-based articles, adopt new articles based on the Table G model with Private Limited restrictions on share transfers.

Board Resolution: Approve conversion proposal, convene EGM, authorise directors to sign documents. Special Resolution at EGM: Approve conversion to Private Limited, authorise MoA alteration removing guarantee clause, approve new AoA for Private Limited, authorise capital structure change.

Minimum two directors sign the declaration under Rule 39(5)(f). If the company has an MD/WTD, they must be signatories. The declaration confirms the company's solvency, no payment defaults on deposits/debentures/interest, and the ability to meet obligations. False declaration attracts prosecution under Section 447.

File Form MGT-14 within 30 days with Special Resolution. File Form INC-27 within 30 days with: altered MoA/AoA, directors' declaration, CA certificate, Registered Valuer report, member list with shareholdings, Board Resolution copy, EGM attendance sheet.

Total timeline: 45-60 days. Board Meeting (Day 1), EGM Notice with 21-day period (Day 2-23), EGM and Special Resolution (Day 24), Form MGT-14 and INC-27 filing (Day 25-30), ROC processing (15-30 days), Certificate issuance (Day 45-60). Add 15 days if ROC raises queries.

Government fees: Form MGT-14 (₹300-600), Form INC-27 (based on capital slab ₹2,000-50,000). Professional fees: CS/CA (₹25,000-75,000), Registered Valuer (₹10,000-25,000). Stamp duty on altered documents varies by state (0.1-0.5% of capital). Budget ₹50,000-1,50,000 total.

Statutory timelines cannot be shortened (21-day EGM notice, 30-day filing deadlines). However, ensure first-time-right filing with complete documents, respond to ROC queries within 24 hours, engage experienced professionals, file forms immediately after resolutions are made, and maintain regular follow-up with the ROC.

Late filing attracts additional fees under Section 403: a 2x fee (up to 30 days late), a 4x fee (31-60 days late), a 6x fee (61-90 days late), a 10x fee (91-180 days late), and a 12x fee (beyond 180 days late). For excessive delays, seek condonation under Section 460 of the Act.

Post-conversion compliance costs remain similar: Continue filing annual returns (MGT-7) and financial statements (AOC-4). Additional requirements include dividend declaration procedures, share transfer documentation, and maintaining statutory registers. Yearly compliance costs typically range from ₹15,000 to ₹ 30,000.

ROC issues the Form INC-25 certificate within 30 days of receiving a complete Form INC-27 as per Rule 39(6). In practice, expect 10-15 working days for defect-free applications. The certificate displays a new status as "Private Limited Company" with a new CIN, effective from the date of issuance.

Your company transitions from a non-profit guarantee structure to a for-profit share capital structure. The legal entity continues with the same rights and obligations. New CIN reflects Private Limited status (PTC designation). Can now distribute profits, issue shares, and grant ESOPs, but maintains private company restrictions.

Section 18(3) ensures complete legal continuity. All contracts, agreements, licenses, and arrangements remain valid and enforceable—no need to execute fresh contracts. Third parties cannot terminate agreements due to conversion. Inform the contracting parties about the structural change and the new CIN.

Bank accounts continue to function with the exact account numbers. Submit Form INC-25 certificate, updated MoA/AoA, and Board Resolution to the bank for updating records. KYC details updated with new CIN. No need to close and reopen accounts. Online banking credentials remain unchanged.

GST registration continues with the same GSTIN. Update the company constitution type on the GST portal. The income tax PAN and TAN remain unchanged. Update the company type in the PAN database. Other licenses (Shops & Establishment, Professional Tax) require constitutional document updates, but the numbers remain the same.

Key changes: Can declare dividends (following Section 123), maintain a share transfer register, issue share certificates within 2 months, with a maximum of 200 members allowed, mandatory share transfer restrictions, and the Board can approve share transfers and distribute profits to shareholders.

Employment contracts remain valid under the principle of legal continuity. Can now offer ESOPs as a Private Limited Company. Provident Fund and ESI registrations continue unchanged. Update the company constitution type with EPFO. Employees become eligible for stock-based compensation schemes.

Yes. Private Limited Companies can raise equity investment from up to 200 members, issue preference shares, receive venture capital funding, grant employee stock options, and issue convertible debentures. Cannot make a public offering but can raise funds through private placement under Section 42.

Post-conversion, declare dividends under Section 123 from profits after tax, accumulated profits, or free reserves. The board recommends a dividend, and shareholders approve in a general meeting. No dividend distribution tax (abolished in 2020); shareholders pay tax on dividend income.

SetIndiaBiz provides end-to-end support, including initial eligibility assessment and documentation review, drafting resolutions and amended MoA/AoA, coordinating with CA and Registered Valuer certificates, filing Forms MGT-14 and INC-27, handling ROC queries and resubmissions, obtaining a Form INC-25 certificate, and providing post-conversion compliance guidance. Additionally, we offer a 100% refund if the conversion fails due to our error.