Converted Partnership
Conversion of Partnership Firm into Private Limited Company
When a business is commenced, they initially go for partnership or sole proprietorship because of compliance requirements and low budget. Further, they opt for the conversion of a partnership firm into a private limited company to limit liability and reap the advantages of a private limited company. Conversion of a partnership firm into a limited company reduces the liability risk because the company becomes a separate legal entity. The company's assets also remain untouched unless there's fraud. Conversion of a partnership firm into a private limited company is always very advantageous. The company members enjoy benefits like perpetual succession and limited liability.
Benefits of Conversion of Partnership firm into a private limited company
The major benefits of conversion of a partnership firm into a private limited company are as follows:
- With the conversion of a partnership firm into LLP income tax, the shareholders are liable only to a considerable extent.
- Private limited company registration makes it easier for the companies to raise funds as there are no limitations on the number of stockholders.
- Make management and shareholding changes and revisions easily without disturbing the company policies.
- A private limited company has a distinct legal entity.
- The outsiders can never take control of a private limited company.
- Obligations and assets are transferred.
- No capital gain taxes are levied on property transfer from one company to the other.
- Constant succession is also enjoyed with a private limited company.
Essentials for Converting the Partnership firm into a Private Limited Company
Section 366 of the Companies Act 2013 puts down the essentials for the conversion of a partnership firm into a private limited company stamp. These include:
- The partnership deed needs to be registered with the Registrar of companies.
- There should be at least two shareholders or directors to convert a partnership firm into a private limited company.
- Secured creditors of a partnership firm must obtain the No Objection Certificate before conversion into a private limited company.
- The partnership firm should also get an exclusive name while ensuring that the name ends with Pvt. Ltd.
- A contribution of minimum capital is necessary.
- The partnership firm looking to convert into a private limited company should also have a registered office.
- Once the conversion procedure is complete, the private limited company should form its AOA and MOA for Incorporation.
Procedures for Conversion of Partnership Firm to Private Company
The procedure for conversion of a partnership firm into a private limited company goes like this:
- Conduct a meeting with the partners to take their consent on a conversion of a firm into a limited company.
- Authorise two or more partners to take all the required steps for conversion of the partnership firm into a private limited company according to Section 366 of the Companies Act 2013.
- Divide the partners-contributed business capital into units.
- Apply for Company Name Approval through RUN or Reserve Unique Number and upload all the required documents with the company registrar within 20 days from the name approval date.
- Publish advertisement in a couple of newspapers in Form URC-2 within 21 days of notice of publication date.
- Fill in Form URC-1 or the conversion form with all required documents within 30 days of company name approval.
- File Form 22 for verification of registered office within 30 days of business incorporation.
- File the incorporation forms via Spice+ with GSTIN, PAN and TAN, and AOA and MOA in a single window.
- File the E-Form INC 7 or application for incorporation to provide the details of all subscribers and directors of the converted firm.
- File Form INC 8 as an attachment of INC 7 for a declaration by a professional.
- File E-Form INC 9 as an attachment of INC 7 for an affidavit from the subscribers.
- File E-Form DIR-12 for appointment of the first directors of the company.
- Get NPC from the property owner.
- Present proof of company address which can be a rental agreement or lease deed.
- Present copies of utility bills, but they should not be older than two months.
