Procedure for conversion of Partnership Firm to Private Limited Company
A registered Partnership is a partnership firm registered under the Indian Partnership Act 1932. It is a business entity where two or more people come together to provide the requisite resources and share the profits in an agreed ratio.
A Private Limited Company is that type of company that offers Limited Liability or legal Protection to its shareholders. Private Limited Company in India lies somewhere in between a partnership firm and a widely owned public company. It can be registered with a minimum of two people. A person can be both a director and shareholder in a Private Limited Company.
Conversion of Partnership firm into a Private Limited Company is a good option for anyone who wishes to expand small and medium scale enterprises to a large scale one, or for infusion of equity capital.
Points to be considered for conversion of registered partnership to Private Limited Company:
- Registered Partnership firm with minimum two or more Partners
- There must be provision in the Partnership deed for converting the firm into Company
- If the above requirement is not fulfilled by the firm, then the Partnership deed should be altered
- Minimum 2 Shareholders and Directors. However, directors and shareholders can be the same person
- All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the company.
- All partners of the partnership firm shall become shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the conversion.
Benefits of Conversion of Partnership Firm in to Private Limited Company
- No stamp duty: All movable and immovable properties of the Partnership firm automatically vest in the Company. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.
- No Capital Gains tax shall be charged on transfer of property from Partnership firm to Company.
- The goodwill of the Partnership firm and its brand value is kept intact and continues to enjoy the previous success story with a better legal recognition.
- Separate legal entity: In the eyes of the law, a private limited company is a separate entity.
- Limited liability: A private company offers limited liability to the business owner.
- Perpetual succession: A company has ‘perpetual succession’, that is continued or uninterrupted existence until it is legally dissolved.
- Transferable shares: Shares of a company limited by shares are transferable by a shareholder to any other person.
Documents required for conversion of a registered Partnership firm to a Private Limited Company
Identity and Address Proof of Directors and Shareholders
- Passport size photographs of the directors
- Copy of Aadhar Card
- Copy of Driving License or Voter ID or Passport
- Copy of PAN Card
- Copy of bank statement or electricity bill or mobile bill (not older than two months)
- Copy of Passport (in case of foreign national or NRI)
- No Objection Certificate to be obtained from all the secured creditors (if any) of the applicant
- Written consent or no objection declaration from partners of the firm
- A Copy of Partnership deed and Certificate of Registration duly verified by at least two partners of the general partnership
- Amended Partnership deed (After inclusion of a provision of conversion in the deed)
Process for Conversion of Partnership Firm in to Private Limited company
- Hold a meeting of all the partners of Partnership Firm:Liability of the Partners of the firm is unlimited, when a firm want to convert into Limited Company, then consent of not less than three-forth of the partners should be required.
- Consent from secured creditors of firm(if any)
Written consent or No Objection Certificate is to be obtained from the secured creditors of the firm, if any
- Apply for DSC and DIN for all directors and shareholders of the company
Obtain DSC of all directors and shareholders.
- Obtaining the Name Approval in RUN
An application needs to be filed with the Registrar of Companies (ROC) to obtain the name for the proposed company after conversion, with various attachments stating the fact that the partnership firm is proshyposed to be converted under the Companies Act, 2013.
- A company after obtaining availability of name in terms of the provisions of section 4 of the Act, shall attach the required documents and information to the Registrar along with Form No. URC-1 (Conversion Form). It should be filed within 30days of name approval. With URC-1 form, following documents should be submitted:
- A list showing the names, addresses, and occupations of all persons named therein as members with details of shares held by them.
- Also, a list of persons proposed as the first directors of the company.
- An affidavit from each of the persons proposed as the first directors, that he is not disqualified to be a director under section 164(1). Further that all the documents filed with the Registrar for registration of the company contain correct, complete, and true information to the best of his knowledge and belief.
- Partnership deed, along with the revised deeds, in case the firm is registered.
- A statement of assets and liabilities of the partnership firm duly certified by a chartered accountant.
- Further, a copy of the latest income tax return of the Partnership Firm.
- A statement specifying the following particulars:
- The nominal share capital of the company and the division of shares.
- The number of shares taken and the amount paid on each share.
Written consent or No Objection Certificate is to be obtained from the secured creditors of the firm, if any
Obtain DSC of all directors and shareholders.
An application needs to be filed with the Registrar of Companies (ROC) to obtain the name for the proposed company after conversion, with various attachments stating the fact that the partnership firm is proshyposed to be converted under the Companies Act, 2013.
Publishing the Advertisement in Two Newspaper (English Daily and Vernacular)
As per section 374(b) of Companies Act, 2013 firm seeking registration under the provision of Part I of Chapter XXI shall publish an advertisement about registration.
– Seeking objections, if any within 21 clear days from the date of publication of the notice
–The said advertisement shall be in Form No. URC-2.
–Further, these shall be published in 2 newspapers one in English and other in the principal vernacular language of the district.
Affidavit Required E-form INC -9
File an affidavit, duly notarised, from all the partners to provide that in the event of registration, necessary documents or papers shall be submitted to authority with which the firm was earlier registered, for its dissolution as partnership firm consequent to its conversion into private limited company.
Draft MOA and AOA
Therefore, after obtaining name approval, and approval of E-FORM URC-1 from the Registrar, the applicant is required to draft the Memorandum and Articles of Association and other relevant documents necessary for incorporation.
SPICE+ / INC-33 / INC-34/ AGILE PRO-
Company required to file e-form SPICE+ INC-33/ INC-34/AGILE PRO along with URC-1 as linked form with all the attachment as required in normal Incorporation of Company like:
- MOA & AOA
- INC-9 declaration by subscribers
- DIR-2 consent to act as director
- ID Proofs of Subscriber & Director (PAN CARD and ADHAAR CARD)
- Lease deed or title deed of registered office of the company
Once the Registrar in satisfied on the basis of documents and information filed by the applicants, He shall issue a certificate of incorporation in Form No. INC.11.
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