Overview

At the start of their business, people opt for a sole Proprietorship or partnership due to their low budget and compliance requirements, with the thought process that the partnership business will grow, and the revenue involved will be higher. Also, to limit the liability and take advantage of the benefits of a private limited company, partnership business is often converted into a private limited company

Converting a partnership into a private limited company, which becomes a separate legal entity, reduces the risk of liability, and 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.

Mandatory for converting Partnership Firm to Private Limited Company

The essential Pre-requisite conditions for converting the partnership firm into a Private Limited Company are:-

• To convert a partnership firm into a private limited company, there should be at least two directors and shareholders.

• The partnership deed should be registered with the Registrar of Companies.

• No Objection certificate should be obtained from the secured creditors of the partnership firm.

• The partnership firm must obtain a unique name, and the name must end with Pvt. Ltd.

• There should be the contribution of the minimum capital.

• There should be a registered office of the partnership firm.

• After completing the procedure of conversion, the company should form their MOA and AOA for incorporation.

Advantages of Converting a Partnership Firm to Private Limited Company

Following are the benefits of converting a partnership firm into a private limited company:

• The advantage of converting a partnership firm into a private limited company is that the private limited company enjoys the status of a separate legal entity which a partnership firm does not.

• Private Limited Company has limited liability. However, in the case of a partnership firm, the partners are personally liable for each debt.

• Private limited company formation is more transparent than other business structures. A private limited company has its advantages, such as limited liability, perpetual succession, easy access to funds, etc., which a partnership firm does not have.

• Ownership transfers if the shareholders provide their consent. However, in the case of a partnership firm, the partner cannot transfer his share without referring to the partnership deed.

• Compliance is higher in Private Limited Company as compared to Partnership Firm.

Some Additional Benefits of Converting a Partnership Firm to Private Limited Company Are Given Below-

• Shareholders have limited liability.
• It is easy to raise funds in the company, as there is no restriction on the number of shareholders.
• separate legal entity.
• Expansion and Diversification.
• Changes and changes related to shareholding and management can be made without disrupting business policies.
• Control of the company cannot be lost to outsiders.
• Transfer of assets and liabilities.
• No capital gains tax will be levied on transfer of assets from firm to company.
• The private company enjoys perpetual succession.

Documents Required for Converting a Partnership Firm to Private Limited Company

Following is the list of documents required to convert a partnership firm into a private limited company

Documents Required in E-Form URC-1

• The details of the members showing the names, addresses and occupations of all along with the details of the shares held by them.

• Specific description of the first directors of the company.

• An affidavit from all 1 directors that he is not disqualified from being a director under section 164(1). In addition, all documents filed with the ROC for Incorporation of the Company contain information that is accurate and true to the best of the applicant's knowledge and belief.

• Details of the partners of the partnership firm, such as their identity and address proof.

• Copy of Partnership Deed. Further, if the Partnership Deed was amended at any time in the past, copies of the principal and all modified deeds. Additionally, if the firm is registered, a certificate of 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 made on a date not earlier than 30 days from the date of filing of Form No.

• All income tax related documents of partnership firms.

• A copy of the newspaper advertisement.

• No Objection Certificate from all secured creditors of the applicant firm.

• Consent of most partners.

• A statement specifies-

1. the nominal share capital of the company,
2. number of shares,
3. the number of shares held, and
4. the amount paid on each share,
5. Name of the Company, with the words "Private Limited"

Document Required in Spice+Form

• DIR-2 Declaration from the 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)

The Procedure of Conversion of a Partnership Firm to Private Limited Company

The steps required to convert a Partnership Firm into a Private Limited Company are:

Step 1- Conducting a meeting of partners to convert the partnership firm into a private limited company

Consent of majority of the partners, at least 3/4 of the partners must be present in person.

To authorize two or more partners to take all steps required and 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 prerequisites to apply for DSC and DIN of the proposed directors and shareholders.

Step- 2 Obtain name Approval in the Run Form

File a Application in the Run Form on the MCA website to get the incorporation done for the proposed company

A partnership firm can apply for the same name, provided the name must 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 necessary enclosures along with the proposal for conversion of partnership firm.

Step- 3 File Form URC-1

File a form URC-1 within 30 days of name approval along with the essential documents in the form attachments with ROC

Step- 4 Publish An Advertisement in Two Newspaper

• As per section 374(B) of the Companies Act, 2013 firms opting for incorporation under the provision of Part 1 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 is in the principal vernacular language of the district

Step- 5 Draft MOA And AOA

Once the name and e- Form URC-1 is 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 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.

Legal Assistance in Converting Partnership Firm to Private Limited Company

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