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What are the advantages of converting to a private limited company?

15 Septembre 2017

Tata Sons is the holding company of all major companies of the Tata group and now there are plans to convert Tata Sons into a private limited company.

"It is apparent the present proposal is nothing but a device and design to equip the majority shareholders of Tata Sons with one more weapon to oppress the minority shareholders and subvert the highest standards of good corporate governance which is expected to be maintained in a company of the stature and repute as Tata Sons", Cyrus Investments said.

Cyrus Investments also alleged that the Explanatory Statement fails to disclose that the true effect of converting the status of Tata Sons into a private company is to introduce/re-introduce restrictions on transferability of shares which, otherwise today, are void and unenforceable under law and norms applicable to public companies; and which ought to have never been included in the Articles of Association of a public company in the first place.

Since Mistry lost his board seat after being removed as chairman of Tata Sons a year ago, his power to control decisions at group companies is curtailed further.

"As the promoter and principal shareholder of your company and as the custodian of the "Tata" brand, Tata Sons does not support any businesses dealing in any form, whether directly or indirectly, through contracts or subcontracting arrangements", Tata Sons had said in a directive signed by FN Subedar, chief operating officer. Family of former chairman of Tata Sons, Cyrus Mistry, which holds 18.4 per cent stake in Tata Sons, had said that it will vote against the proposal.

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Report adds Mistry family has taken objection to the move that wants to convert Tata Sons into a private limited company.

The development comes a week ahead of the annual general meeting (AGM) of the group scheduled for September 21st.

Tata Sons will also not need shareholders' approval for selling any company undertaking, borrowing money to invest in trust securities or appointing managing director, whole-time director, manager or their respective remuneration.

Taking a public company private requires the approval of the NCLT, according to the Companies Act, 2013. Ltd., one of the investment firms, wrote in a letter addressed to the Tata Sons board and made available to The Hindu. "This could be construed as detrimental to the status of minority shareholder", BS quoted a corporate law expert as saying.

What are the advantages of converting to a private limited company?