Conversion of Partnership Firm into Private Limited Company

Conversion Process, Legal Formalities, ROC Compliances, Documents and expenses
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Decision to Convert Partnership Firm into Private Limited Company is a good choice when you are looking for expansion or private equity investment. Another reason now a days is relaxation in regulatory policies for ease of doing business for companies and announcement of a special reduction in the corporate tax rate through the Taxation Laws (Amendment) Ordinance, 2019, many leading entrepreneurs and firms are opting to convert their partnership firm to company. Section 366 of the Companies Act, 2013 and the Companies (Authorised to Register) Rules, 2014 guides about the eligibility, restrictions, and perquisites essential for incorporation or conversion of entities to the company in India.

Foremost Condition for Conversion is “There should be 7 (seven) or more member in the partnership firm at the time of conversion”
Take approval of partners and add a clause in the partnership deed for the conversion of entity to other forms.

• No Stamp Duty -> All movable and immovable properties of the firm automatically vest in the Company. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.
• No Capital Gain Tax -> No Capital Gains tax shall be charged on transfer of property from firm to Company.
• Continuation of Brand Value and Credentials -> The goodwill of the Proprietorship firm and its brand value is kept intact and continues to enjoy the previous success story with a better legal recognition.
• Carry Forward and Set off Losses and Unabsorbed Depreciation -> The accumulated loss and unabsorbed depreciation of Proprietorship firm is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company.
• Automatic Transfer of Assets and Liabilities -> All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the company.

• Partnership firm Should be registered and minimum 7 Partners
• Minimum Share Capital shall be Rs. 100,000 for conversion into a Private Limited Company. (Rs. 500,000 for Public Limited Company)
• If the above requirement is not fulfilled by the firm, then the Partnership deed should be altered
• DIN and DSC for all directors
• No-Objection Certificate is to be obtained from concerning Registrar of Firm ( if Registered Firm)
• All partners of the partnership firm shall become shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the conversion.
• Minimum 7 Shareholders | Minimum 2 Directors (for Private Limited Co.) and 3 Directors (for Public Limited Co.) | The directors and shareholders can be same person

• A list of all intended member’s names, addresses, occupations and details of shares held by them
• A list of persons proposed as the first directors of the company
• An affidavit from each of the persons proposed as the first directors, that he is not disqualified to be a director under sub-section (1) of section 164 and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief
• Copy of Partnership Agreement
• A statement of assets and liabilities of the Partnership Firm duly certified by a chartered accountant in practice which is made as on a date not earlier than thirty days of the filing of form no.URC-1
• A copy of latest income tax return of the Partnership Firm
• NOC from all creditors
• The statement with the details of the nominal share capital of the firm and the number of shares separated, the number of shares taken and the amount remitted for each share and the name of the firm with the word private limited to be provided.
• Copy of newspaper advertisement (Form No. URC-2), statement of accounts of the company which must not be 6 days preceding the date of the application and it must be duly certified by the auditor.
• An undertaking that the proposed directors shall comply with the requirements of Indian Stamp Act, 1899 (2 of “1899)