Companies Act Section 18

Companies Act Section 18: Conversion of Companies Already Registered

1. Conversion of Company Class

Section 18 of the Companies Act provides a framework for the conversion of companies that are already registered under the Act. 

This provision is significant because it allows companies to change their classification, enabling them to alter their corporate identity and structure while remaining compliant with the law. 

Under this section, any company that is registered under the Act and belongs to a particular class (such as a private company, public company, or limited liability company) has the right to convert itself into a different class of company. 

For example, a private company may convert into a public company or vice versa. 

However, this conversion process is not automatic; it requires the company to follow the procedures and comply with the rules set forth in this Chapter of the Act.

Requirements for Conversion

To initiate the conversion process, the company must make the necessary changes to its Memorandum of Association (MoA) and Articles of Association (AoA), which are its key governing documents. 

The Memorandum outlines the company’s objectives, powers, and name, while the Articles define the internal rules and governance structure of the company. 

These alterations must be made in accordance with the provisions specified in this Chapter, ensuring that the company’s foundational documents reflect its new classification.

By converting into a different class of company, the organization may gain access to new business opportunities, adopt a different governance structure, or seek a change in its ownership or operational model. 

However, this conversion must always be conducted in compliance with the legal framework provided by the Act to ensure the process is legitimate and properly documented.

2. Procedure for Conversion

The conversion of a company is a formal process that involves several steps, all of which are intended to ensure that the change in the company’s classification is properly executed and registered. The procedure for conversion is as follows:

Application to the Registrar

Once the company has decided to convert, it must submit an application to the Registrar of Companies (RoC), which is the regulatory authority responsible for maintaining records of registered companies. 

This application must include the necessary documentation demonstrating that the company has complied with all relevant provisions of the Companies Act related to the registration of companies.

The Registrar’s role is to review the application and ensure that all the legal and procedural requirements for conversion have been met. 

This includes verifying that the company has properly altered its Memorandum and Articles of Association in accordance with the Act.

Closing the Former Registration

Once the Registrar has confirmed that the company has fulfilled all the requirements for conversion, the Registrar will proceed to close the company’s former registration. 

This means that the company will no longer be recognized as belonging to its previous class (e.g., private company) and will instead be treated as a new entity under its new classification.

Issuance of a New Certificate of Incorporation

After the company’s former registration has been closed, the Registrar will register the updated Memorandum and Articles of Association reflecting the company’s new classification. 

Once these documents are registered, the Registrar will issue a new certificate of incorporation. 

This certificate is an official document that confirms the company’s new status and classification, similar to the certificate the company received when it was first incorporated.

The issuance of this new certificate marks the formal completion of the conversion process. 

From that point forward, the company will be recognized as belonging to its new class (e.g., public company) and must operate in accordance with the laws and regulations governing that class.

3. Effect on Existing Debts and Obligations

One of the most critical aspects of the conversion process is ensuring that the change in the company’s classification does not negatively impact its existing legal and financial obligations. 

Section 18 provides clear guidance on this issue, stating that the conversion of a company does not alter or affect any of the company’s existing debts, liabilities, obligations, or contracts.

Continuation of Legal and Financial Commitments

Any debts, liabilities, obligations, or contracts that the company entered into before the conversion will remain in force and will be enforceable as if the conversion had not taken place. 

This means that even though the company’s classification has changed, its legal and financial responsibilities are unaffected. 

Creditors, suppliers, customers, and other stakeholders can still enforce their rights under any agreements or contracts that were entered into prior to the conversion.

This provision is designed to protect the interests of third parties who have ongoing relationships with the company. 

It ensures that the company cannot evade its obligations simply by changing its classification. 

By maintaining the continuity of the company’s commitments, the law promotes fairness and stability in commercial relationships, even when a company undergoes structural changes.