• Apr
  • 25
  • 2012

Procedure for Conversion of Partnership firm into company

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Checklist/Procedure for Conversion of Partnership firm into a company

Conversion of Firm under Part IX of the Companies Act, 1956 :- The firm may be converted into a company by following the provisions of Part IX of the Companies Act, 1956. Sections 565 to 581 deal with conversion of firms into a company under the Companies Act, 1956.

For the purpose of Part IX so far as it relates to the registration of companies limited by shares, a joint stock company means a company having a permanent paid up or nominal share capital of fixed amount divided into shares, also of fixed amount, or held and transferable as stock, or divided and held partly in the one way and partly in the other, and formed on the principle of having for its members the holders of those shares or that stock, and no other persons. Such a company, when registered with limited liability under the Companies Act, 1956 shall be deemed to be a company limited by shares.

A company cannot be registered under part IX unless the assent of majority of its members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose is obtained.

Since the liability of the members of the firm is unlimited, when a firm desires to register itself as a company under Part IX as a limited company, the majority required to assent as aforesaid shall consist of not less than ¾ of the members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose.

Steps for incorporation of company under part IX

Step 1

Hold a meeting of the partners to transact the following business

  • Assent of majority of its members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose of registering the firm under Part IX of the Companies Act, 1956. Since the liability of the members of the firm is unlimited, when a firm desires to register itself as a company under Part IX as a limited company, the majority required to assent as aforesaid shall consist of not less than ¾ of the members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose.
  • To authorize one or more partners to take all steps necessary and to execute all papers, deeds, documents etc. pursuant to registration of the firm as a Company.
  • To execute a supplementary Partnership Deed to align it with the requirements as under:
  • There must be at least 7 partners in the partnership firm;
  • The firm may be registered with the Registrar of Firms;
  • There must be a fixed capital divided into units ;
  • There must be provision of converting a firm into company.
  • There must be an agreement by the partners to convert the partnership to a company. This can be done by a contract in writing to this effect to which the partner’s resolution for conversion can be attached as annexure.
  • Execute a settlement deed.

Step 2

APPLICATION FOR DIRECTOR’S IDENTIFICATION NUMBER AND DIGITAL SIGNATURERS CERTIFICATE

  • Ministry of Company Affairs has made Director’s Identification Number mandatory for each Director. Following details are required for DIN: Name(s) , Father’s Name(s), Permanent Residential Address(s), Present Residential Address(s), Occupation, Name of the Companies in which the promoter is Director/Promoter, Date of Birth , E-mail IDs (Minimum 2 for private company).
  • Ministry of Company affairs have initiated the process of E-filing of the Documents, wherein the either of the Director needs to have Digital Signature Certificate. For the matter of Convenience in submission of documents with Registrar of Companies and expediting the processing, it is advisable to obtain the Digital Signature Certificate from prescribed authorities.
  • Following documents are required for DIN/Digital Signature:  Copy of Passport/ Voter ID/Ration Card/Driving License/ PAN Card/Telephone Bill/Electricity Bill/Bank Statement.
  • The application is required to be signed by the promoter(s).
  • Normally the process takes 5 to 7 working days after submitting the documents with DIN Cell.

Note: In case of a Private Limited Company at least two Directors should be appointed.

Step 3

NAME APPROVAL

  • An application in Form No. 1A needs to be filed with the Registrar of Companies (ROC) with following annexure(s) stating the fact that the partnership firm pro­posed to be converted under part IX of the Companies Act. (Annexure 1).
  • Certified true copy of Partnership Deed  .
  • Certified true copy of the latest balance sheet of the partnership.
  • Certified true copy of the latest income tax assessment order/return.
  • Consent of all the  partners stating that they have agreed to register the partnership firm as a Company .
  • Certified True Copy of the resolution passed by the firm in this regard .
  • The application is required to be digitally signed by one of the promoters.
  • The details to be state in the said application are as follows :

1.      Maximum Six alternative names for the proposed company. (in order of preference)

2.  Names , Father’s/ Husband’s Name, Permanent Residential Addresses, Present Residential Address, Occupation, Name of the Companies in which the Promoter is Director/Promoter , Date of Birth , DIN of the Promoters.

3.      Authorised Capital of the proposed Company.

4.      Main objects of the proposed company.

5.      State of Registered Office of Company

6.     Copy of Trade Mark Application/Certificate If name of proposed company based on a Trade Mark,

Note:

    1. As per Indian Companies Act, 1956, a Private Company should have a minimum Paid up Capital of Rupees One Lac.
    2. As per Indian Companies Act, 1956 there should be at least two promoters in a Private Limited Company.
    3. The Registrar of Companies will ordinarily inform within a period of seven days from the date of submission of the application whether any of the names applied for is available.
    4. If the name is not made available, the Registrar of Companies may reject the application and if it happens, new names to be provided for approval.

Step 4

Registration of Company

  • On obtaining the approval of name , file the following documents with the registrar of Companies within 60 days from the date of name approval
    • Two sets of Memorandum and Articles of Association of the Company. One set shall be duly stamped. A memorandum of association and articles of association may be  made  for the company which will be similar in  all  respects  to  a  normal Memorandum and Articles of Association except that it  incorporate therein terms of settlement deed.
    • After drafting The Memorandum and Articles of Association is required to be stamped as per the Indian Stamp Act. (in Delhi its Rs. 200/- on MOA & 0.15% of Authorized Capital on AOA).
    • Thereafter these documents are required to be executed by the promoters in their own hand in the presence of professionals after the date of Stamping of Memorandum & Article of Association in duplicate stating their full name, father’s name, residential address, occupation, number of shares subscribed for & Signature etc.
    • However, if any director is foreigner and not present in India after the date of Stamping of the Memorandum & Article of Association, in that case, his signature should be attested in Indian Embassy located in his home country.
    • Form No. 1 – This is a declaration to be executed on a non-judicial stamp paper by one of the directors of the proposed company or other specified persons such as Chartered Accountants, Company Secretaries, Advocates, etc. stating that all the requirements of the incorporation have been complied with. (Annexure 2)
    • Form No. 18 – This is a form to be filed by one of the directors of the company informing the ROC the registered office of the proposed company. (Annexure 3).
    • Form No.: 32 – This is a form stating the fact of appointment of the proposed directors on the board of directors from the date of incorporation of the proposed company and is signed by one of the proposed directors. (Annexure 4).
    • Power of Attorney signed by all the subscribers of MOA authorizing one of the subscribers or any other person to act on their behalf for the purpose of incorporation and accepting the certificate of incorporation.
    • Form No. 37 along with Form No. 39 (Annexure 5 & 6).
    • Declaration by two partners verifying the particulars set forth in the above mentioned documents.
    • Consent letters from Directors
    • Filing fees as may be applicable
    • Other information to be submitted:

i) A list showing the names, addresses and occupations of all persons who on a day named in the list, not being more than 6 clear days before the date of registration were members of the company, with the addition of the shares or stock held by them respectively, distinguishing, in cases where the shares are numbered, each share by its number.

ii) If the company is intended to be registered as a limited company, a statement specifying the following particulars :-

a) the nominal share capital of the company and the number of shares into which it is divided or the amount of stock of which it consists

b) the number of shares taken and the amount paid of each share

c) the name of the company, with the addition of the word “Limited” or “Private Limited” as the case may be, as the last word / words, in case the company is being registered with limited liability.

Step 5

On completion of the formalities, the registrar shall register the Company under Part IX of the Act and issue a certificate of incorporation.

Steps for Incorporation of a public limited company

First Five stages are almost same for incorporation of a public limited company except there should be at least seven subscribers, three directors and the minimum paid up capital are Rs. 5 lacs.

After completion of first three stages a private limited company may commence its business but a public limited company is required to obtain certificate for commencement of business from Registrar of Companies. For obtaining the Certificate for commencement of its business, the Company is required to submit following documents with Registrar of Companies:

  • Form 20 to be executed on a non-judicial stamp paper (Annexure 5)
  • Statement in lieu of Prospectus
  • Affidavit from each directors stating that the Company has not commenced its Business
  • Details of Preliminary expenses
  • Board Resolution for approval of preliminary expenses.
  • Board resolution for appointment of first Auditors
  • Consent letter from the Auditors for acting as there Statutory Auditors.

Registrar of Companies thereafter shall process the documents and if all the documents are in order then it will issue a Certificate for commencement of Business.

Steps after incorporation of private company

Once the new company is formed, the takeover agreement would be entered between the Partnership Firm and the newly incorporated company.

Convene a Board Meeting after giving notice to all the directors of the newly incorporated company immediately after incorporation as per section 286 of the Companies Act, 1956 to adopt the agreement entered into by the company and the partner of the firm for the acquisition of business of the firm.

In such a situation, the entire business of the firm along with all its assets and liabilities is transferred to the company.

The company may issue shares or other securities to the Partner of the firm.

Steps after incorporation of public company

Once the new company is formed, the takeover agreement would be entered between the Partnership firm and the newly incorporated company.

Convene a Board Meeting after giving notice to all the directors of the newly incorporated company immediately after incorporation as per section 286 of the Companies Act, 1956 to adopt the agreement entered into by the company.

In the above Board Meeting also fix up the date, time , place and agenda for calling a General Meeting to pass a Special Resolution under section 81(1A) of the Companies Act, 1956 giving powers to the Board of Directors to issue and allot equity shares to Partners of the firm.

Effect of Registration under part IX

  • Vesting of Property : All property, movable as well as immovable belonging to or vested in the firm at the time of registration shall, on such registration pass to and vest in the company as incorporated under Part IX.
  • The Registration of a company under Part IX shall not in any manner affect its rights or liabilities in respect of any debt or obligation incurred or any contract entered into, by, to, with or on behalf of the firm before registration.
  • All suits and other legal proceedings taken by or against the company or any public officer or member thereof which where pending at the time of registration may be continued in the same manner as if registration had not taken place. However, no execution can be done against the property or person of any individual member of the company on any decree or order obtained in such suit or proceeding. If the property of the company is inadequate to satisfy the decree or order, an order for winding up the company may be obtained.
  • All provisions of any Indian law or other instrument constituting or regulating the company shall apply to the registered company in the same manner as if the company had been formed under the Companies Act, 1956 and those conditions were required to be contained and were contained in its Memorandum and Articles of Association.
  • As per section 383A of the Companies Act, if the paid up capital of the Company is Rs. 500 lacs or more than the company is required to appoint a full time Company Secretary.
  • As per section 269 of the Companies Act, 1956 if the paid up capital of the company is Rs. 500 Lacs or more than the Company is required to appoint either Managing Director or Whole Time Director or Manager.
  • Debts and liabilities are not automatically transferred to the new company and therefore a novation agreement will have to be entered into by the company with its debtors and creditors.
  • Obtain an indemnity from the company to the partnership firm for all acts, deeds and things done after the registration under Part IX and vice versa.
  • Comply with all the relevant provisions of the Companies Act, 1956 i.e. call requisite meetings, register charges, comply with section 58A if necessary, etc.
  • Stamp duty.      Conversion of firm to company is exempted from payment of stamp duty as there is no change in the ownership and no transfer is involved.

35 Responses to “Procedure for Conversion of Partnership firm into company”

  1. manish somani says:

    I am a partner in a partnership firm. The firm is working as government contractor. firm have a ELE Licence (A class) issued by ele department of Raj government. If i convert the firm in a pvt Ltd company the Licence will transfer to company of not. what about past experience of firm? Is calculated in company account?

    Kindly help me on this matter.

  2. Reena says:

    Dear Sir,

    What is the meaning of transfer of capital asset? Does it mean Net worth? The pship firm is a services company and does not have any movable or immovable property baring a few computers? Therefore when this firm is converted into a Pvt Ltd Co- what will be considered as capital asset as in this case the transfer will be a taxable event becoz 50% of partners will not continue to be shareholders for 5 years as they will be selling the company post conversion. It is therefore important to understand what the income tax implication will be on the conversion. Will it be negligible since there are no capital assets or does capital asset mean net worth?

  3. Arun Kadekodi says:

    Dear Sir/Madam,

    Thanks for the details provided in the article above. I have a couple of questions…

    1. We have a partnership firm with 7 partners. The current office space is owned by the partnership firm. If we convert our partnership firm to Private Ltd. under Part IX, as I understand from the above, it will automatically get transferred to the Private limited firm. I just want to ensure that no further taxes (like stamp duty or any other) would have to be borne by the new entity. Please clarify.

    2. The partnership firm has developed a software product which is doing well in the market. Will this be automatically transferred to the new company? Will the new company be taxed on this for any reason (like goodwill etc.)?

    3. Will all the employees of the firm automatically become the employees of the new entity and will their seniority etc. be held intact? I ask this from the point of view of gratuity / superannuation etc.

    Thanks a lot in advance for the replies. I would be greatly obliged if someone can clarify this soon.

    Regards,

    Arun

  4. srinivas says:

    Dear Sir,
    on conversion of our partnership to pvt ltd co , please clear the following doubts
    1.whether the company registered will use the same pan no, tin no, drug license , food license of the existing partnership or will have to acquire new one.
    2. valuation of assets and liabilities on which date whter 01.04.2013 will be okay, till now business is being carried out.
    3.bank od of our partnesrship
    4. what is diffrence between take over and conversion of partnership into new co

    regards
    srikanth

  5. CA Praveen Kumar says:

    @ Utkarsha hospital pvt ltd:

    Sir the procedure to convert the partnership firm to Privatelimited remains the same as explained above. If any query, u can mail it to smpassociates2012@gmail.com or call me at 9841965627.

  6. utkarsha hospital pvt ltd says:

    we are three partners having partnership with a hospital building tell procedger to convert in to private limited

  7. shah says:

    If one has to take money from partnership firm.As firm has not paid dues. Civil court case has filed on the partnership firm. the civil court case is going on.meantime firm is converted into PVT.LTD company without NOC of creditor? whether firm has to take NOC from creditor to convert into PVT.LTD company? and or inform to court whee civil case is going on? Is there any time limit?

    As firm has unlimited liability and PVT.ltd has limited liability, CREDITOR can inform to court as firm has not taken NOC or NOT inform to court has to pay FIRST DUES OF CREDITOR?
    Pl reply.

  8. yogesh says:

    can we trasfer all books of accounts from firm to pvt ltd co.? we taken seperate pan no excise no and vat no for pvt ltd? How books will be assessed by various authorities?

  9. Nanda Kishore says:

    Sir, we are planning to convert partnership co. in to pvt.ltd. company. Till the procedure is complete, can we use the TIN, SERVICE TAX AND PAN NOs. of the Partnership company? After complying to all procedures, generally how much time it takes to get the incorporation? Please advise.

  10. AMISH SARAIYA says:

    I want to know if any minimum period required for partnership deed to convert into pvt ltd company under part ix

  11. akash says:

    Sir how can u convert a Partnershiop firm into Pvt, ltd,without dissolution

    1 u have to dissolve the partnership firm into propritorship firm.
    Then u ll convert it into Pvt ltd with his assets and liabilities.

    bcoz in moa of a company 1 clause ll be added that 1st this company is with this name and now the company ll take the firm with his assets and liabilities

  12. akash says:

    Sir how can u convert a Partnershiop firm into Pvt, ltd,without dissolution

    1 u have to dissolve the partnership firm into propritorship firm.
    Then u ll convert it into Pvt ltd with his assets and liabilities.

  13. SHIVANI says:

    Dear Sir,

    We had taken over the partnership firm to pvt ltd but we wont fall under part IX request you to kindly suggest the procedure for taking over the assets and liability.

  14. Deepak says:

    Sir i have a problem with regard to conversion of a firm into private limited company
    The following are the details –

    1. The two partners have entered into partnership deed three year ago and started computer training institute. with 85:15 share
    2. They have a bank account in the name of firm and also pan card
    3. one of the partner with 85% share filed the IT return as prop. of the firm by mistake.
    4. Now he intends to convert it into a private limited company.
    5. no books have been maintained in the name of the firm nor IT return filed in the name of the Firm.
    Please tell me the procedure in the present situation. should i go for dissolution of firm and convert into proprietorship business and then convert into / take over by Private limited company or any other measure. please guide me at the earliest. 

  15. jatinder singh says:

    Dear Sir,
    could you through light on the quarterly or annual reports or document that are required to be submitted to the Registrar of the Companies or any other authority after a company is formed.

  16. mohan singh tewatia says:

    WHAT LEGAL DOCUMENTS TO BE OBTAINED FROM THE PROPRIETORSHIP FIRM, WHEN THE NAME OF SOLE PROPRIETORSHIP FIRM I.E. M/S JITENDRA INDUSTRIES HAS BEEN CHANGED TO M/S JITENDRA STEEL BY THE SAME PROPRIETOR.

    AN REARLY REPLY SHALL BE APPRECIATED.

  17. asad says:

    Hi sir, I want to know where has it been specified that one needs a tax assessment order ( which provision of Companies act, act ) since it is one of the documents that needs to be filed with the name approval……. 

  18. asad says:

    Hi sir 

  19. naresh kumar says:

    dear sir kya main parner ship firm ke sath mlm chala sakta hun pls tell me

  20. ANIL CHATURVEDI says:

    We have converted the partnership into pvt ltd and got incorporation certificate on july 2011 but
    actual vat/cst/excise /service tax etc nos and pan and tan nos are taken only on 1st april 2012
    what would be the status of sales and purchase made during the period between july 11 to march 12. whether it will be treated as URD sales /purchase?
    whether we can pass a special resolution to take over the business of partnership on 31.03.2012 and inform the ROC and file the resolution.

  21. kaushal says:

    sir i want to konw what documents required for convert patnership firm into pvt ltd company
    and how to convert

  22. Murali R says:

    I have suggested our partners the firm to convert a limited liability, in that case, whether we can trasnfer the entire assets, liabilities, and losses also can enjoy the private limited company, as per the income tax act 47 xiii, says, consisting 5 clauses if satisfied, we can, please clarify

    Murali R

  23. charuagrawal says:

    sir ,

    This is charu agrawal here i wanna start a new partnership firm & also register the same with my husband.so plz guide me the way to do the same.
    Awaiting for ur ASAP reply.
    thanks,

    Charu Agrawal.

  24. TR says:

    We have formed private limited company under part ix of companies act,1956. After incorporation of the company, what happens to partnership firm? how do we intimate Registrar of, Registrar of firms?

  25. Mustaqeem says:

    Hi sir,

    I had made a Pvt Ltd company in February 2009 and we dint fill tax last year and also we don’t want loose my company,could you tell me minimum expenses in a year..

  26. BIPIN SHAH says:

    Dear Sir, Ours is a partnership with 5 partners. can we convert to PVT Ltd or we have to have 7 partners and then only convert to Pvt Ltd Explain AND SEND THE FORMALITIES FOR THE SAME. THANKS……….

  27. akpkumar says:

    Dear Sir,
    Three individuals out of seven brought their immovable properties as their contribution of capital to the partnership firm and later during the same year, the firm was converted into a company under Part IX.However the partnership deed under which the properties had been tfd to the firm has not been filed with ROC. The immovable properties have been revalued before conversion and the market value of the properties is being shown in the latest balance sheet under fixed assets and as unsecured loans & share premium on the liabilities side. Kindly advise us to whether the transactions are in order.thank you

  28. asif says:

    Dear Sir,
    Can u please tell me procedure of how to convert a Partnership firm onti a private limited company.
    thank you..

  29. Lenin Balaji says:

    Dear sir,

    We had converted our firm into a pvt ltd company in 2005 under part IX. after 3years some (2) of the share holders who were also directors then, have resigned and disinvested their shares to other family members. they had also realised the proceeds of the sale of shares. the teransfer was registerd in the companies register.

    After some time the ex directors /share holders have filed a suit that they have rights in the immovable (Factory) property of the company, in the status of partner when the property was purchased by the partnership firm which was vested in the limited company while converting under part IX. stating that the MOA states the partnership deed as preamble and hence their right as partner still exixts.

    we wish to clarify after converting into a company will it still hold the right of a partner just because the MOA has the earlier partnership reproduced. can any one claim the right of share on property stating that it was purchased when it was apartnership even after vesting the property into the limited companyunder form 37

    Kindly clarify
    REGARDS
    Lenin Balaji

  30. Jimin Shah says:

    Dear Sir,
    What about the tax consequenses in the case of conversion?
    how the Profit and loss account, profit distribution shall be made among partners till the conversion of firm into the company.
    My email id is variyajimin@gmail.com

    Thanks in advance

    Regards

    Jimin Shah

  31. navneet pandey says:

    if a partnership firm do not fulfil the requirements of partix like having seven partners then what is the procedure to change it in a private limited company

  32. arunabha says:

    whether it is possible to convert a partnership firm having only 2 partners into a private limitedCompany by Part IX Conversion.

    rgds…
    Arunabha

  33. S Sreenivasan says:

    Dear Sir, Ours is a partnership with 5 partners. can we convert to PVT Ltd or we have to have 7 partners and then only convert to Pvt Ltd Explain sreenivasan

  34. Murali says:

    Dear Sir,

    We are in the process of moving from firm to Pvt ltd company. we got Incorporation certificate and we are about to commence the business. Our CA is suggesting us to make Sale invoice for fixed assets transfer to Pvt ltd company. Kindly suggest me the correct process.

    Thanks & Regards
    Murali

  35. Rajendra Mahakul says:

    Dear Sir,

    I request you please send us the file for fulfill export obligation under EPCG Scheme.What are the document to be fulfilled after import completed under EPCG scheme.

    Regards
    Rajendra MAhakul

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