How to Convert a Partnership Firm into a Private Limited Company?

 

Would you like to convert a partnership firm into a private limited company? 

 

For many small and medium-sized firms, the partnership structure is limiting. When you convert to a private limited company, you can enjoy more freedom and control. This guide will take you through the process of converting a partnership firm into a private limited company.

 

What is a Partnership Firm?

A partnership firm is a business established by two or more people to manage a profitable enterprise. Such a group is referred to as a Partnership Firm, and each member is referred to as a partner.

 

What is a Private Limited Company?

A Private Limited Company is a commercial corporation that is privately owned. In a Private Limited Company, a partner’s liability is limited to the number of shares they hold. Shares in a Private Limited Company cannot be exchanged publicly. After completing the process of company registration online one must use "Private Limited" with the company's name.

 

Benefits of conversion of a Partnership Firm into a Private Limited Company

 

• Company Shareholders are only partially accountable.
• Due to no constraints on the number of investors, corporations make it simpler to raise money.
• Legally separate entity
• It is possible to modify management and shareholding arrangements without impairing corporate rules.
• The corporation cannot be taken over by outsiders.
• Both obligations and assets are transferred.
• There will be no capital gain tax on the sale of property from one corporation to another.

 

Requirements for Converting a Partnership Firm to a Private Limited Company 

• At least two partners are required for a partnership firm to be registered.
• A clause allowing for the company to become a company must be included in the partnership agreement.
• The partners must agree upon a change that will turn the business into a company.
• The Partnership deed should be modified if the business is unable to satisfy the aforementioned requirements.
• Directors and stockholders must each number at least two. Contrarily, a shareholder and a director may be the same individual.
• Before the conversion, the Partnership Firm's assets and liabilities were immediately converted into the assets and liabilities of the new entity.

 

Documents Required for Conversion of Partnership Firm to a Private Limited Company

• Shareholders’ and directors’ PAN cards. 
• Aadhar card of Shareholders and Directors 
• Voter ID/ Passport/ Driving License of Shareholders and Directors.
• Shareholders and Directors’ latest bank account statement or telephone bill.
• Electricity bill
• No Objection Certificate (NOC).
• Verified copy of the Partnership Deed and the Certificate of Registration.
• Deed of Partnership Amended (After inclusion of a provision of conversion in the deed).

 

Step-by-Step Process of Conversion of a Partnership Firm to a Private Limited Company

 

Step 1 - Organize a Meeting of the Partners

 

To give one or more partners the authority to carry out all actions and sign all papers, documents, deeds, and other legal documents required for the business to be registered as a corporation. 

 

Adopt an additional partnership agreement to conform to the conditions listed below:

• In a Partnership Firm, there must be at least two partners.
• The company could be registered with the Registrar of Companies.
• A fixed capital divided into components is required.
• There must be a way to convert a corporation into a corporation.
• An agreement between the partners is required to convert the partnership firm into a private company. It can be done through a written contract stating that the partner’s decision to convert will be attached as an annexure.

 

Step 2 - Create a settlement deed. 

 

Step 3 - Get the DSC (Digital Signature Certificate).

 

Step 4 - Obtain a DIN in DIR-3 format (Director Identification Number).

 

Step 5 - Submit a RUN application (Reserve Unique Name).

 

Step 6 - Use the E-form URC-2 to advertise the registration in two newspapers (one in the vernacular and one in English) to see if anyone objects within 21 days after publication.

 

Step 7 - A firm must submit the necessary paperwork and information to the registrar along with form URC-1 after confirming the name is available under section 4 of the Act (conversion form).

 

Step 8 - Submit the Spice+ form for the conversion of the Partnership Firm to a Private Limited Company, along with all the information regarding the directors and others.

 

 

Frequently Asked Questions

 

 

• Is it possible for an unregistered partnership to become a private limited company?

Unregistered entities with two or more members may choose to convert their partnership into a private limited company if they fulfil the criteria for company registration online.

 

• In India, is private limited company registration required?

Yes, registration for a private limited company is required because a firm cannot exist without registration.

 

• Is the Private Limited designation required after the firm name?

Yes, it is required to put "Private Limited" after the company's name if it is incorporated as a Private Limited Company.

 

•  Is filing annual returns a requirement for a Private Limited Company?

Yes, all MCA (Ministry of Corporate Affairs) registered businesses are required to file annual returns with the appropriate ROC (Registrar of Companies).

 

• Is it necessary to change the firm's name to convert it into a company?

According to the Companies Act of 2013, depending on the type of company, the words Limited or Private Limited must be appended to the end of the name.

 

• How many days must the paperwork be submitted to the Registrar of Companies?

Within 30 days of the day the firm's name was approved, the documents must be filed.

 

• Is it necessary to submit a different form for PAN and TAN?

The information needed to generate PAN and TAN is provided in e-form INC-32, so no other form needs to be submitted.