Conversion of Partnership Firm into Private Limited Company

Conversion of Partnership Firm into Private Limited Company

Conversion of Partnership Firm into Private Limited Company require filing of certain e-forms with the MCA.

 

 

What is Partnership Firm?

According to Section 4 of the Indian Partnership Act, 1932, Partnership firm is a form of business whereby at least 2 persons come together to carry on a business with the aim of earning profits. The persons are referred as Partners, their relationship is known as Partnership and the firm is referred as Partnership Firm. The name under which the firm is carried on is known as Firm Name.

Partnership Firm is not a separate legal entity and the partners of the Firm have unlimited liability. The Partnership relation is governed through the Indian Partnership Act, 1932 and the Partnership Deed.

Read More about Partnership Firm in Detail

 

What is Private Limited Company?

Private Limited Company is a Company having at least 2 members and it cannot publically trade its shares. The members of the Private Limited Company enjoy Limited Liability that is to the extent of their contribution in capital. Unlike partnership firm, it is a separate legal entity in the eyes of law.

Read More about Private Limited Company in Detail

 

What is Conversion of Partnership Firm into Private Limited Company?

When the Partnership Firm desires to convert its business structure into Private Limited Company then it has to observe the process of Converting partnership firm into Private Limited Company.

  • All the assets and liabilities of the firm become the assets and liabilities of the company immediately
  • Partners of the firm shall become the shareholders of the proposed company in the proportion of their capital investment in the firm.
  • Capital Gains and Stamp Duty shall not be charged on the transfer of property of Firm to the Private Limited Company
  • Appointment of minimum 2 Directors of the Company is mandatory for the conversion; one must be a resident of India

 

What are the benefits of converting Partnership firm into Private Limited Company?

1. Separate Legal Entity

To get the status of Separate Legal Entity and to get the benefits relating thereto.

2. Limited Liability

Unlike Partnership Firms, the liability of all the members of the Private Limited Company is Limited.

3. Easy to raise funds

In partnership firms, only the partners can introduce funds in the business and the Private Limited Company has more sources for raising funds like by issuing private shares.

4. Transparency

The business structure of the Private Limited Company is more transparent than Partnership Firm.

 

What are the documents required for converting Partnership Firm into Private Limited Company?

From Proposed Shareholders and Directors

  • PAN Card
  • Identity Proof – Driving License/ Passport/ Voter ID Card
  • Latest Passport Size photographs
  • Address Proof

From Partnership Firm

  • Partnership Deed
  • Copy of latest Income Tax Return
  • Copy of latest audited Financial Statements
  • Registered Address Proof (of the Proposed Company)

**Add Conversion Clause in the Partnership Deed.

Apply for Documents Preparation

 

What is the process of conversion of Partnership Firm into Private Limited Company?

1. Partners Meeting

The first step is to convene a meeting of the partners of the partners to obtain the assent of majority of partners on the conversion into Private Limited Company. At least 3/4th of the partners must be present in person in the meeting.

The partners must mutually authorize two or more partners to execute the full process of converting partnership firm into Private Limited Company.

2. Obtain written consent from Secured Creditors

Subsequently, the firm shall obtain the written consent or No Objection Certificate from all the Secured Creditors.

Apply for N.O.C

3. Obtain DSC for all the Shareholders and Directors

Next step is to obtain the Digital Signature Certificate for all the Shareholders and Directors of the proposed Company.

Apply for DSC

 4. Apply for Name Approval – RUN

File an application for name approval by filing RUN (Reserve Unique Name) with the MCA in order to incorporate Private Limited Company after the conversion process.

Apply for Name Approval

5. File Conversion Form URC-1

Once the name is approved for the proposed company after the conversion the next step is apply for conversion by filing URC-1 Form with MCA within 30 days from the date of name approval.

File URC-1 Form

6. Advertisement – Form URC-2

  • Thereafter, According to Section 374(b) of the Companies Act, 2013, the next step in conversion process to publish an advertisement in two newspapers in the form of notice about the registration.
  • It is mandatory to publish about conversion is to intimate the General Public about the registration in order to get the objections (if any raised) within 21 days from the date of publication of notice.
  • The advertisement must be published in Form URC-2.
  • It must be published in two Newspapers and one shall be English Newspaper and second one shall be in vernacular language of the District.

File URC-2 Form

7. Drafting of MOA and AOA

Then the proposed company is required to draft MOA and AOA and other relevant documents of the proposed company.

Apply for MOA & AOA Draft

8. File Necessary Forms

File the following necessary forms with the MCA –

  • INC-32
  • INC-33
  • INC-34
  • AGILE

File Required Forms

9. Certificate of Incorporation – Form INC-11

Subsequently, registrar shall check the application and all the documents submitted along with and if the Registrar is satisfied with all the forms and documents then he shall issue the Certificate of Incorporation of Private Limited Company in Form INC-11.

Apply for Incorporation

10. Intimate ROC about dissolution of firm

After the incorporation of Private Limited Company, it shall inform the ROC about the dissolution of the Partnership Firm.

**Important Note

Partners of the firm shall become the shareholders of the proposed company in the proportion of their capital investment in the firm.

 

What are the documents required to be attached with Forms to be filed with MCA?

1. URC-1

  • Name, Address, Occupation and details of shares held of all the members of the proposed company
  • Details of the proposed First Directors of the Proposed Company
  • Affidavit from the proposed first directors of not being disqualified to act as such
  • Revised Partnership Deed (in case of registered firm)
  • Duly Certified Statement of Assets and Liabilities of the firm
  • The Nominal Share Capital and division of shares of the proposed company

2. INC-32 (SPICe)

  • Consent of Directors to act as Directors in Form DIR-2
  • Declaration by Subscribers and first Directors in Form INC-9
  • INC-33 – E-MOA
  • INC-34 – E-AOA

 

Conclusion

Incorporating a Private Limited Company is preferred over Partnership Firm because the company is a Separate Legal Entity and its members have Limited Liability. Moreover, Private Limited Company provides more opportunities to flourish and expand the business as compared to Partnership Firm.

Get assistance from your Trustworthy Advisor Manthan Experts for converting Partnership Firm into Private Limited Company.

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Knowledge Source:

Partnership Firm Registration in India

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