Navigating the Transition: How to Convert Your Company’s Status from Public to Private

Introduction

In the dynamic business environment of Pakistan, companies often reevaluate their corporate structure based on growth goals, investor interests, and regulatory flexibility. One such strategic decision is to convert a public company into a private company. This process—though permissible under the Companies Act, 2017—requires a formal legal and procedural framework, including regulatory approvals from the Securities and Exchange Commission of Pakistan (SECP).

This article provides a comprehensive guide to converting a public company into a private company in Pakistan, covering the legal basis, step-by-step process, documentation, compliance requirements, implications, and best practices.

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1. Understanding the Difference: Public vs. Private Companies

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2. Legal Provision: Companies Act, 2017

The Companies Act, 2017, under Section 46, allows for the conversion of a public company into a private limited company. However, this conversion must be sanctioned by SECP, and several regulatory steps must be completed.

“A public company may be converted into a private company by alteration of its articles with the approval of the Commission.”

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3. Reasons for Conversion

Companies may choose to convert from public to private for several strategic reasons:

• Reduction in compliance costs

• Operational flexibility

• Consolidation of ownership

• Ease of decision-making

• Exit from public listing (for listed companies)

• Restructuring or succession planning

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4. Pre-Conversion Checklist

Before initiating the conversion, ensure:

• The company is not under investigation or legal dispute

• Tax and statutory filings are up to date

• No objection from creditors or minority shareholders

• Board of Directors and shareholders support the transition

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5. Step-by-Step Procedure to Convert Public to Private

Step 1: Board Meeting

• Convene a Board Meeting

• Pass a resolution to propose conversion

• Authorize company secretary to initiate documentation

Step 2: Alteration of Memorandum and Articles of Association (MoA & AoA)

Update:

• Name of the company (e.g., XYZ Public Ltd → XYZ Private Ltd)

• Clause converting company type to “private”

• Restrictions on number of members and transfer of shares

Step 3: Special Resolution in General Meeting

• Call an Extraordinary General Meeting (EGM)

• Pass a Special Resolution approving:

  • Change in company status

  • Alteration of Articles of Association

• File Form 26 with SECP within 15 days of passing the resolution

Step 4: Application to SECP

Submit an application for conversion along with:

• Certified copies of:

  • Special Resolution

  • Altered MoA and AoA

  • Board resolution

• Form 27 (Application for conversion)

• Auditor’s certificate (if required)

• Updated list of shareholders and directors

• Affidavit confirming no pending liabilities, litigation, or public interest concerns

Step 5: SECP Review and Approval

• SECP reviews all documents

• May request clarifications or additional documents

• Upon satisfaction, SECP issues Certificate of Incorporation on Conversion

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6. Post-Conversion Compliance

Once the conversion is approved:

• Update:

  • Company stationery (letterheads, invoices, signboards)

  • Bank records

  • FBR and PRA registration

  • EOBI and PESSI portals

• Inform:

  • Lenders and creditors

  • Employees

  • Business partners

• File updated Form A at next filing due date

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7. Special Considerations for Listed Companies

If the public company is listed on Pakistan Stock Exchange (PSX):

• Must apply for delisting

• Fulfill PSX delisting regulations

• Buyback of shares from minority shareholders under exit offer

• Approval from SECP and PSX required before conversion

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8. Legal and Financial Implications

a. Corporate Governance

• Private companies are exempt from:

  • Appointing independent directors

  • Code of Corporate Governance requirements

  • Certain disclosures under financial reporting frameworks

b. Taxation

• No direct tax impact due to conversion

• Must ensure:

  • NTN and STRN details updated

  • No pending tax liabilities

c. Employees

• Employee contracts remain valid

• Inform EOBI, PESSI, and labor authorities of change in status

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9. Penalties for Non-Compliance

Failure to follow the approved procedure may result in:

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10. Common Mistakes to Avoid

• Not holding a valid EGM for special resolution

• Failing to alter Articles correctly

• Delaying SECP filings

• Not obtaining creditor or minority shareholder consent

• Assuming conversion is automatic upon board approval

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11. Real-World Example

Case: Mid-Sized Manufacturing Firm Converts to Private

• XYZ Textiles (Public) opted for conversion due to high audit and governance costs

• Conducted legal review, passed required resolutions

• SECP approved conversion in 60 days

• Re-registered as XYZ Textiles (Private) Ltd, reducing compliance overhead by 30%

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12. Role of Corporate Compliance Advisors like Sterling.pk

At Sterling.pk, we guide companies through seamless legal transitions by:

• Drafting resolutions, notices, affidavits, and altered AoA/MoA

• Filing Forms 26 and 27

• Coordinating with SECP

• Managing communication with banks, tax authorities, and stakeholders

• Assisting with PSX delisting (if applicable)

Let our legal and corporate compliance experts manage your conversion with accuracy and speed.

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13. FAQs

Q1: Can a private company revert back to public after conversion?
Yes, through a fresh application to SECP with special resolution and updated AoA.

Q2: Is SECP approval always required?
Yes. Conversion without SECP’s formal approval is invalid and penalized.

Q3: How long does the conversion process take?
Typically 45 to 60 days, depending on document completeness and SECP workload.

Q4: Will company registration number change after conversion?
No. The company retains the same registration/incorporation number.

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Conclusion

Converting a public company into a private company is a strategic move that offers flexibility, reduced regulatory burden, and operational efficiency. However, it requires careful planning, legal precision, and full compliance with SECP regulations. From board meetings to filing SECP forms and updating stakeholders, every step must be executed diligently.

With the right support—like that offered by Sterling.pk—your company can navigate this transition smoothly, legally, and with full confidence.