Overview on Conversion of Partnership Firm into a Private Limited Company

At the initial stages of business, many entrepreneurs choose a Sole Proprietorship or Partnership structure due to lower costs and simpler compliance requirements. As the business grows and revenues increase, transitioning to a Private Limited Company becomes a strategic move. This conversion offers limited liability, ensures the separation of personal assets from business risks (except in cases of fraud), and provides the business with a separate legal entity status under the Companies Act, 2013. Additionally, shares of a Private Limited Company are privately held, making it a preferred structure for growth and funding.

Benefits of Converting a Partnership Firm into a Private Limited Company

The conversion of a Partnership Firm into a Private Limited Company brings multiple advantages, including:

1.      Separate Legal Entity: A Private Limited Company enjoys an independent legal identity, unlike a Partnership Firm.

2.      Limited Liability: Shareholders’ liabilities are limited to their shareholding, protecting personal assets.

3.      Perpetual Succession: The company continues to exist irrespective of changes in ownership or management.

4.      Transparency: Operations and financials are more transparent, improving credibility.

5.      Ease of Fundraising: Companies have better access to funding through equity and other instruments.

6.      Transferability: Shares can be easily transferred with the consent of shareholders, unlike in a Partnership where transferability depends on the Partnership Deed.

7.      No Capital Gains Tax: No capital gains tax is levied on the transfer of property during the conversion process.

8.      Expansion Opportunities: Companies have greater scope for diversification and expansion.

9.      Shareholding Flexibility: Alterations in shareholding or management can be done without disrupting business policies.

10.  Perpetual Succession: The company’s existence is not affected by changes in directors or shareholders.

Essentials for Conversion

To successfully convert a Partnership Firm into a Private Limited Company, the following prerequisites must be met:

1.      Minimum Requirements: At least two directors and shareholders are required.

2.      Partnership Deed: The deed must be registered with the Registrar of Companies (ROC).

3.      Unique Name: The company’s name must comply with the Companies Act, 2013, and end with “Pvt. Ltd.”

4.      No Objection Certificate: Secured creditors must provide written consent.

5.      Registered Office: The firm must have a registered office.

6.      Memorandum and Articles of Association (MOA & AOA): Prepare MOA and AOA for incorporation.

7.      Minimum Capital Contribution: Comply with capital requirements.

Documents Required for Conversion

For E-form URC-1

·         Details of members, including names, addresses, occupations, and shareholding details.

·         Details of first directors.

·         Affidavits from directors affirming their eligibility.

·         Copies of the Partnership Deed and registration certificate.

·         Statement of assets and liabilities, certified by a Chartered Accountant.

·         Income tax documents of the firm.

·         NOC from secured creditors.

·         Consent from the majority of partners.

·         Statement of share capital and details.

For SPICE+ Form

·         DIR-2 Declaration from first directors.

·         ID and address proof of shareholders and directors.

·         NOC from property owner.

·         Proof of commercial address (rent agreement/lease deed).

·         Recent utility bills (not older than two months).

Registration Procedure

1.      Conduct Partner Meeting: Obtain consent from at least three-fourths of the partners to initiate the conversion process and authorize representatives to handle documentation.

2.      Secure Creditor Consent: Obtain a No Objection Certificate from secured creditors.

3.      Digital Signature Certificate (DSC) and Director Identification Number (DIN): Apply for DSC and DIN for all proposed directors and shareholders.

4.      Name Approval: File the RUN form on the MCA website to secure a unique company name.

5.      File Form URC-1: Submit Form URC-1 within 30 days of name approval, along with necessary attachments.

6.      Publish Advertisement: As per Section 374(b) of the Companies Act, 2013, publish advertisements in English and the principal vernacular language of the district regarding incorporation.

7.      Draft MOA and AOA: After Form URC-1 approval, draft the company’s Memorandum and Articles of Association.

8.      File SPICE+ Form: Submit the SPICE+ form with required documents. If the ROC is satisfied, a Certificate of Incorporation (COI) will be issued.

Fastzeal Support in Converting Partnership Firm into Private Limited Company

Fastzeal provides end-to-end assistance to ensure a seamless conversion process. Our support includes:

1.      Expert Assistance: Consult with our experts to understand the process and benefits.

2.      Query Resolution: Address all your concerns regarding the conversion.

3.      Document Preparation: Comprehensive support in preparing and filing all required documents.

4.      Advisory Services: Professional guidance at every step.

5.      Completion of Conversion: Hassle-free transition with complete compliance.

By partnering with Fastzeal, you can ensure a smooth and efficient transition of your Partnership Firm into a Private Limited Company while focusing on your business growth.