Overview on Conversion of Partnership Firm into a Private Limited Company
In the starting of their business, people opt for 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 of the benefits of a Private limited company, the Partnership business often gets converted into a Private Limited Company.
Converting a Partnership firm to a private limited company, which becomes a separate legal entity, reduces 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.
Essentials for Converting the Partnership firm into a Private Limited Company
The essential pre-requisite conditions for converting the Partnership firm into a Private Limited Company are-
Benefits of Converting a Partnership firm into a Private Limited Company
The followings are the benefits of converting a partnership firm into a private limited company:
Below mentioned are some of the additional benefits of converting a Partnership firm into a Private Limited Company-
Documents Required for Converting a Partnership Firm to a Private Limited Company
The following is the list of documents required for the conversion of a Partnership firm into a Private Limited Company-
Documents required in E-form URC-1
- 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
The procedure of Conversion of a Partnership Firm into a Private Limited Company
Requisite steps to be followed for the conversion of a Partnership Firm into a Private Limited Company are:
Step 1-Conducting a meeting of the partners for the Conversion of the Partnership Firm into a Private Limited Company
Consent of the majority of the partners, not less than 3/4thof the partners 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.
Step -2 Obtain name Approval in the RUN form.
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 documents in the form of attachments with ROC.
Step - 4 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-
Step – 5 Draft MOA and AOA
Once the Name and E-FORM URC-1 are approved by the Registrar, the applicant company is required to draft the Memorandum and Articles of Association and other relevant documents required for Incorporation.
Step -6 Issue of Certificate of Incorporation
File SPICE+ along with the required documents and if the Registrar is satisfied with the documents and information filed by the applicants. The Registrar shall issue a COI (Certificate of Incorporation) to the applicant company.
Corpbiz assistance in Converting Partnership Firm into Private Limited Company
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.