Corporatisation is the need of the hour. The entire world is gradually drifting towards one global market without any trade barriers between the countries. A small unincorporated organization led by few partners cannot think of growth on large scale without corporatizing itself. Corporatisation has its own advantages such as Limited Liability, Perpetual Succession, Transferability of shares, easy access to funds etc. Advantages of converting
All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the company.
- 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 Proprietorship firm to Company.
- Continuation of Brand Value- 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 Partnership 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.
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.
- The partners receive consideration only by way of allotment of shares in company and the partners share holding in the company in aggregate is 50% or more of its total voting power and continue to be as such for 5 years from the date of conversion.
- Registered Partnership firm with minimum 7 Partners
- Minimum Share Capital shall be Rs. 100,000 (INR One Lac) for conversion into a Private Limited Company
- Minimum Share Capital shall be Rs. 500,000 (INR five Lac) for conversion into a Public Limited Co.
- If the above requirement is not fulfilled by the firm, then the Partnership deed should be altered
- 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
- DIN (Director Identification Number) for all the Directors
- DSC (Digital Signature Certificate) for two of the Directors
- Filing of requisite form for Conversion
- Preparation of Foundation documents of the Company
- Filing for name approval
- Filing of Incorporation documents
- Receiving certificate of incorporation
(Author Ankita Chopra is Partner at White Collar Legal LLP and can be contacted at firstname.lastname@example.org)