Deemed Public Company: Section 43A of the Companies Act, 1956 and the Current Law
Section 43A historically treated certain private companies as public companies when prescribed ownership, turnover, investment or deposit conditions were met. Those automatic conversion rules are no longer the operative framework for companies governed by the Companies Act, 2013.
What was a deemed public company?
Under the former section 43A, a company incorporated as a private company could be treated as a public company by operation of law when specified conditions applied. This was different from voluntarily converting a private company into a public company by altering its articles and completing statutory filings.
Historical triggers under Section 43A
1. Corporate ownership of share capital
The historical provision addressed private companies in which not less than 25% of paid-up share capital was held by one or more bodies corporate, subject to statutory exceptions. Certain shares held by banking companies in fiduciary capacities, including as trustees or in relation to deceased estates, were treated differently for the calculation. The legislation also contained exceptions involving wholly held companies, foreign corporate shareholders and qualifying private-company ownership structures.
2. Turnover threshold
Section 43A also formerly contained a turnover-based test tied to a prescribed amount. The relevant historical test concerned turnover reaching the prescribed threshold, not turnover falling below it. The prescribed amount and applicable statutory text must be checked for the particular historical period.
3. Investment in a public company
Another former trigger concerned a private company holding at least 25% of the paid-up share capital of a public company, subject to the provisions then in force.
4. Acceptance or renewal of public deposits
The historical framework also addressed private companies accepting or renewing deposits from persons other than specified insiders, including members, directors and their relatives, subject to the statutory wording and exceptions.
Historical compliance and the 1956 Act
Where the deemed-public provisions applied, the company could have obligations to notify the Registrar and regularise its status and records under the law then applicable. Some companies retained restrictions characteristic of private companies even while treated as public companies for statutory purposes. The precise filing and name-change consequences depended on the applicable version of section 43A and later amendments; they should not be assumed to apply today.
How the Companies Act, 2013 treats private and public companies
Section 2(68) defines a private company by reference to its articles, including restrictions on share transfers, a limit on members subject to exceptions, and a prohibition on invitations to the public to subscribe for its securities.
Section 2(71) defines a public company and provides that a company which is a subsidiary of a company that is not a private company is deemed to be a public company for purposes of the Act, even where the subsidiary continues to be a private company in its articles.
Section 2(87) defines a subsidiary company by reference to control over the composition of the board or the requisite voting power, subject to the applicable statutory explanation and rules. Thus, the present subsidiary relationship, rather than the former general 25% shareholding trigger, is central to the deemed-public-company rule.
Sections 14 and 18 address alteration of articles and conversion of companies from one class to another, subject to required approvals, filings and applicable rules. Conversion should not be confused with statutory deeming under section 2(71).
Does the old 25% rule still apply?
No. A private company does not automatically become a deemed public company under the Companies Act, 2013 merely because another body corporate holds 25% of its share capital, its turnover exceeds a historical threshold, or it owns 25% of a public company. Other statutory obligations may nevertheless arise from its ownership structure, business activities, fundraising or deposit arrangements.
Practical checks for companies
- Review the current shareholding pattern, voting rights and board-control arrangements.
- Determine whether the company is a subsidiary of a public company under sections 2(71) and 2(87).
- Check the memorandum, articles, corporate filings and applicable exemptions or notifications.
- For a proposed voluntary conversion, follow the procedure under sections 14 and 18 and the relevant Companies (Incorporation) Rules.
- For older transactions or litigation, identify the exact version of the Companies Act, 1956 that applied on the relevant date.
Official legal references
- Ministry of Corporate Affairs (MCA) - legislation, rules, notifications and company filings.
- India Code - official legislative text of the Companies Act, 2013 and historical legislation.
- e-Gazette of India - official statutory notifications and amendments.
This article provides general legal information. For a company-specific classification or historical dispute, consult the relevant statute, notifications, corporate records and a qualified professional.