Overview on Conversion of Partnership Firm into Private Limited Company
Initially, many individuals start their business as a Sole Proprietorship or Partnership because of its low budget and compliance requirements, with the thought process that the Partnership business will grow, and the revenues involved will become more. Further, to limit the liability and to avail the benefits of a Private limited company, the Partnership business often gets converted into a Private Limited Company.
By converting a Partnership firm to a private limited company, which becomes a separate legal entity, reduce the risk of liability, and the personal assets will remain untouched except in case of fraud. The incorporation and compliance procedure of a private limited company is as per the Companies act, 2013, and the shares are held privately.
A brief on “Partnership Firms Vs. Private Limited Company”
- The advantages of converting the Partnership firm into a Private Limited Company is that, the Private Limited Company enjoys the status of a separate legal entity that a Partnership firm does not.
- Private Limited Company has Limited Liability. However, in the case of the Partnership firm, partners are personally liable for every debt.
- The formation of a Private Limited company is more transparent than other business structures. Private Limited Company has its advantages such as Limited Liability, Perpetual Succession, easy access to funds, etc. which, the Partnership firm does not possess.
- The ownership gets transferred if the shareholders provide their consent. However, in the case of a Partnership Firm, the partner cannot transfer its share without referring to the Partnership deed.
- Compliances are much in Private Limited Company as compared to Partnership firm.
What are the Essentials for Converting the Partnership Business into a Private Limited Company?
The essential for converting the Partnership business into a Private Limited Company are-
Conversion of Partnership Firm into Private Limited Company
What are the Benefits of Converting a Partnership firm into a Private Limited Company?
We strongly believe that Corporatization is the need of the hour. The entire world is gradually becoming a global market, while every entrepreneur is trying to reduce the trade barriers occurring in the business. A Partnership firm having limited partners will not be able to grow on a large scale until and unless it converts itself into a Company.
Below mentioned are the benefits of converting a Partnership firm into Private Limited Company-
- Shareholders have limited liability.
- Raising the fund is easier in the company, as there is no restriction on the number of shareholders.
- Separate legal entity.
- Expansion and Diversification.
- Changes and alterations related to shareholding and management can be done without interrupting the business policies.
- Control of the company cannot be lost to outsiders.
- Transfer of assets and liabilities.
- No Capital gain tax shall be charged on the transfer of property from firm to company.
- Enjoys perpetual succession.
What Documents are Required for Conversion of a Partnership Firm into a Private Limited Company?
Following documents are required for Conversion of a Partnership firm into a Private Limited Company-
Documents required in E-form URC-1
- Particulars of the members reflecting the names, addresses, and occupations of all along with details of shares held by them.
- Particulars of individuals proposed as the first directors of the company.
- An affidavit from the individuals proposed as the 1st directors, that he is not disqualified to be a director under section 164(1). Additionally, all the documents filed with the ROC for the incorporation of the company contain information that is accurate and true to the best of the applicant’s knowledge and belief.
- Particulars of the partners of the firm i.e. the Identity and Address Proof of the partners.
- Copy of Partnership Deed. Also, in case the Partnership deed was revised at any time in the past, copies of the principal and all altered deeds. Additionally, if the firm is registered, the certificate of the registration issued by the Registrar of Firms is also required.
- A statement of assets and liabilities of the Partnership Firm duly certified by a Practicing Chartered Accountant which is made as on a date not earlier than 30 days of the filing of form no.URC-1
- All the Income tax-related documents of the Partnership Firm.
- A copy of Newspaper Advertisement.
- No Objection Certificate from all the secured creditors of the applicant firm.
- A Consent from the majority of Partners.
- A statement specifying-
The nominal Share Capital of the company,
The number of shares,
The number of shares taken, and
The amount paid on each share,
The name of the company, with the addition of the word “Private Limited”.
Documents required in Spice+ form
- DIR-2 Declaration from first Directors,
- Copy of ID and Address proof of the shareholders and directors,
- NOC from the owner of the property,
- Proof of Commercial address (Rent Agreement or lease deed),
- Copy of the utility bills (not older than two months)
What is the Procedure of Conversion of a Partnership Firm into a Private Limited Company
Requisite steps are required to be complied with for the conversion of a Partnership Firm into a Private Limited Company. Those are as follows:-Step 1-Conducting a meeting of the partners for the Conversion of Partnership Firm into Private Limited Company
- Consent of the majority of the partners, not less than 3/4thof the partner should be present in person.
- To authorize two or more partners to take all steps required and to execute the conversion process along with the documentation.
- Consent of the Secured Creditors-
Before conversion, the partners must obtain written consent from the secured creditors of the firm, if any.
- Apply for DSC and DIN for all proposed directors and shareholders of the company-
It is one of the pre-requisites to apply for DSC and DIN of the proposed directors and shareholders.
File an application in the RUN form on the MCA website to get the incorporation done for the proposed company after conversion.
A Partnership firm can apply for the same name provided the name should be unique as per the rules of the Companies Incorporation Rules 2014 and subject to the availability of the Name.
The proposed director or shareholder shall provide the necessary attachments along with the proposal for the conversion of the partnership firm.Step -3 File Form URC-1
File Form URC-1 within 30 days of name approval along with the necessary attachments with ROC.
Publish an advertisement in Two Newspaper
As per section 374(b) of the Companies Act, 2013 firm opting for Incorporation under the provision of Part I of Chapter XXI shall publish an advertisement about incorporation.
An advertisement shall be in Form No. URC-2. Further, the advertisement shall be published in 2 newspapers-
- 1 in English and,
- The other in the principal vernacular language of the district.
Draft MOA and AOA
Once the name and E-FORM URC-1 gets approvedby the Registrar, the applicant company is required to draft the Memorandum and Articles of Association and other relevant documents required for incorporation.
File requisite forms with ROC
File SPICE+ along with the requisite attachments. If the Registrar is satisfied based on attachments and information filed by the applicants. The Registrar shall issue a COI (Certificate of Incorporation) to the applicant company.
How can Corpbiz assist their clients in Converting Partnership Firm into Private Limited Company?
We at Corpbiz have trained experts to help you throughout thepre and post Conversion process of the Partnership firm into a Company. Our Experts will guide and assist you in the conversion process and also ensures the timely and effective completion of your work. For any queries related to Conversion process and related services, feel free to contact our experienced and trained professionals at Corpbiz. Contact Corpbiz and our team of experienced professionals and provides timely updates about the process, and get your job completed.Package Inclusion
- Proper Analysis of Conversion and its benefits.
- Arranging the Documents.
- Submission of Requisite forms and attachment to the respective authority.
Frequently Asked Questions
With effect from 15th August 2018 onwards, Unregistered entities with two or more members can opt for the conversion of a Partnership into a company.
When a partner retires from a firm and receives an amount in respect of his share in the partnership, there is no transfer of an interest of the partner in the assets of the firm, therefore no part of the share (amount) received by him would be treated as a Capital Asset.
- Dissolution with the order or intervention of the court.
- Dissolution without the order or intervention of the court.
Yes, DIR-2 is compulsory in SPICE+. It is the consent to act as a director of the proposed company.
Minimum 2 directors are required to start a private limited company. However, In case of One Person Company a single individual can incorporate a private limited company. Thus, if a person is planning to incorporate a company individually, he/she can start it with only one director.
Yes, Registration for Private Limited Company is compulsory as, without registration, there can be no existence of a company.
Yes, it is mandatory for all the companies which are registered under MCA to file their Annual returns with the concerned ROC every year.
- Minimum 2 Directors,
- Minimum 2 Shareholders.
Yes, If the company gets incorporated as a Private Limited Company, it is compulsory to add a Private Limited Company after the company’s name.