Process on Conversion of a Partnership Firm to Private Limited Company

Do you want to convert your Partnership Firm to a Private Limited Company? This article will help you in clearing your thoughts related to the conversion of a Private Limited Company. Information such as “How to convert Partnership Firm to PVT LTD Company?”, conversion of a Partnership Firm to a Private Limited Company, and information on the conversion of Partnership Firm to the Company under Companies Act, 2013.

Introduction 

Many people start their business as a Sole Proprietorship or Partnership to save money and comply with regulations, with the expectation that the Partnership business will develop and the revenues involved will increase. Furthermore, the Partnership Firm is frequently transformed into a Private Limited Company in order to limit responsibility and take advantage of the benefits of a Private Limited Company.

By converting a Partnership to a Private Limited Company, it becomes a separate legal body, the risk of responsibility is reduced, and personal assets are protected, unless in the event of fraud. A Private Limited Company’s incorporation and compliance procedures are governed by the Companies Act of 2013, and its shares are held privately. Before going through the conversion process and its benefits let’s have a quick look at what is a Partnership Firm and Private Limited Company.

What is a Partnership Firm?

A Partnership Firm is a company founded by two or more people to manage a business for profit. Each member of such a group is referred to as a partner, and the firm as a whole is referred to as a Partnership Firm.

What is a Private Limited Company?

A Private Limited Company (PLC) is a small commercial corporation that is privately owned. In a Private Limited Company, a member’s liability is limited to the amount of shares he or she holds. Shares in a Private Limited Company cannot be exchanged publicly.

Benefits of conversion of a Partnership Firm into Private Limited Company

• Shareholders are only liable to a certain extent.

• The corporation makes it easier to raise funds because there are no restrictions on the number of stockholders.

• Legally distinct entity.

• Shareholding and management changes and revisions can be made without disrupting company policies.

• Outsiders cannot take control of the company.

• Assets and obligations are transferred.

• On the transfer of property from one company to another, there will be no capital gain tax.

• Constant succession is something he enjoys.

Converting Partnership Firm to PVT LTD Company certain conditions needs to be met

• A registered partnership firm is one that has at least two partners.

• The Partnership Deed must include a provision for transforming the firm into a Company.

• To transform the firm into a Company, the partners must come to an agreement.

• If the firm fails to meet the conditions mentioned above, the Partnership deed should be changed.

• There must be at least two shareholders and directors. Directors and stockholders, on the other hand, can be the same person.

• All of the Partnership Firm’s assets and liabilities immediately before the conversion become the company’s assets and liabilities.

Documents Required to Convert Partnership Firm to PVT LTD Company

• Shareholders’ and directors’ PAN cards. A passport copy of the Partnership firm’s PAN/GST registrations, Aadhar card, Voter ID/ Passport/ Driving License of Shareholders and Directors may be provided by citizens.

• Shareholders and Directors’ latest bank account statement/telephone bill/electricity bill

• All of the applicant’s secured creditors must sign a No Objection Certificate.

• Written consent or a letter of no objection from the Firm’s partners

• At least two general Partnership partners must verify a copy of the Partnership Deed and the Certificate of Registration.

• Deed of Partnership Amended (After inclusion of a provision of conversion in the deed)

Process on Conversion of a Partnership Firm to Private Limited Company

Step 1: Conduct a meeting among the partners

To authorize one or more partners to take all necessary actions and execute all necessary paperwork, documents, deeds, and other documentation for the firm to be registered as a corporation. Implement a supplemental partnership agreement in order to align with the requirements outlined 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: Put a settlement deed in place. The chosen draught must be advertised in the newspaper using the URC 2 form.

Step 3: Obtain the DSC (Digital Signature Certificate).

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

Step 5: Submit an application for the RUN (Reserve Unique Name).

Step 6: Advertise the registration in two newspapers (Vernacular and English) using the E-form URC-2 to ascertain if there is any opposition within 21 days of publication.

Step 7: After obtaining the name’s availability under section 4 of the act, a firm shall submit all required documents and information to the registrar, together with form URC-1 (conversion form).

Step 8: Submit Spice+ form, with all the details related to the directors and others for converting Partnership Firm to Private Limited Company.

FAQs on the conversion of Partnership Firm to Private Limited Company

1. Is there a fee for capital gain or stamp duty on a conversion?

On the transfer of property from a Partnership Firm to a Private Limited Company, there will be no capital gains tax or stamp duty.

2. Is DIR-2 a must-have in SPICE+?

Yes, DIR-2 is required for SPICE+. It is the agreement to serve on the board of directors of the proposed company.

3. Is it necessary to include a Private Limited after the company’s name?

Yes, it is necessary to include a Private Limited after the company’s name.

4. What are the requirements for forming a PVT LTD Company?

There must be a minimum of two shareholders and two directors.

5. 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).

Conclusion

The benefits of transforming a Partnership Firm into a Private Limited Company include the Private Limited Company’s standing as an independent legal entity, which a Partnership Firm does not have. A Private Limited Company’s establishment is more transparent than other business formats. Limited Liability, Perpetual Succession, Easy Access to Funds, and other benefits are available to Private Limited Companies that are not available to Partnership Firms.