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.

Mandatory Conditions

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.

Requirements

  • 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

Process

  • 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 whitecollarlegal@gmail.com)

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Category : Company Law (4045)
Type : Articles (17778)
Tags : Companies Act (2508) Companies Act 2013 (2280)

19 responses to “Converting a Partnership firm into a Private Limited Company”

  1. Srinivas Dadisetty says:

    Sir
    Invotech Precesion Engineers a partnership firm established in 2004 now wanted to convert into PvT LTD.
    We have PAN, GST, MSME, FIRM REGISTRATION and IMPORT EPORT LICENCE TRade mark Registered

  2. Rohan Purecha says:

    For conversion of partnership firm into pvt company form URC-1 has to be filed?If yes, then error is occurring in the form stating that minimum seven members are mandatory..but since the law has amended 2 members are sufficient. Can anyone please help me out with the solution?

    • Kajal Goyal says:

      Hi, Rohan,

      You are right that the law has been amended but the concerned section has not been notified yet by the Central Government. So for now, you’ll requiring seven members compulsorily to convert your partnership firm into Company.

      In case of any other query, clarification in this respect, please revert back to cskajalgoyal@gmail.com

  3. alok ranjan says:

    we have partnership firm as HVAC work contractor, we want to converted into pvt.ltd, so let me know what is the procedure for change it.

  4. maqsood says:

    Can you please let me know what are the pre requisites & procedure to convert partnership firm into pvt ltd.. In case of 2 partners.

  5. Ravi Thakor says:

    We Are Three Partner Want Transfer Our Firm To PVT LTD Please Suggest Us What We Do.

  6. CS Lokesh Sharma says:

    In case if anybody has query in regard to above article kindly write at lksharmapcs@gmail.com.

    Your query will be resolved with in 1-2 working days.

  7. Shilpa says:

    HI Can you please confirm me, if it is mandatory to have 7 partners, while converting a partnership firm to PRIVATE limited company. ???

    • CS Lokesh Sharma says:

      Hlo,

      Minimum members requirement for private company is 2 only. Hence if you want to convert your partnership firm into private company both the partner will become shareholder of private company.

      However if you want to convert your partnership firm into public company only then the partnership firm should have minimum 7 partners before conversion to adhere the compliance as provided under Companies Act, 2013.

  8. G. AYYAPPA says:

    1.I had doubt what is the requisite form for conversion of partnership firm to company and what is the conversion procedure if partner less than 7.
    2. refer Sections in companies act regarding conversion

  9. ASHOK V AMICHANDWALA says:

    CAN A SOLE-PROPRIETORY CONCERN CAN BE CONVERTED INTO A PRIVATE LIMITED COMPANY ?
    IF YES, PLEASE INFORM WHAT ARE THE STEPS REQUIRED ?
    IF NOT, THEN WHAT IS THE SOLUTION TO CONVERT IT INTO PVT LTD CO?

  10. Ramji Naranamangalam Sampath says:

    KINDLY LET ME KNOW THE PROCEDURE FOR CONVERSION TO PRIVATE LIMITED COMPANY FROM PARTNERSHIP FIRM WITH 2 PARTNERS

    • Shejal Shah says:

      STEP 1: Take Assent of majority of partners in general meeting of the firm and execute a supplementary dded
      STEP 2: Application for DIN and DSC of atleast 7 members of registered partnership firm
      STEP 3: For Name approval file e-form INC-1
      STEP 4: Publish an advertisement in 1 English and 1 vernacular language newspaper in format URC-2 for no objection from public
      STEP 5: For Incorporation of Private Limited Company file e-form URC-1 under Section 366 of Companies Act, 2013.

    • Ashish Thakur says:

      Sir,
      Minimum 7 partners are required to convert a partnership firm into Company.

      Company law committee has recommended to reduce the number of partner from 7 to 2 in case of private Company and 3 partners in case of Public Company, but this recommendation is not yet approved by parliament.

  11. manoj jadhav says:

    I having catering business partnerships firm.conversation to PVT LTD or LLP.is it possible.how ?

  12. Anurag Singh says:

    I have a society registered under societies registration act 1860.
    I want to convert it into section 8 or LLP.
    Is it possible. How?

    Thanks.

  13. JIGNESH SHAH says:

    SIr
    Thanks for valuable information. Its is very good to see that you are shareing your knowledge to us.
    One littel doubt – THIS CAN BE USE FOR PROPRIETORSHIP BUSINESS ALSO. FURTHER IF PROPERITOR HAVE APPLIED FOR BRAND NAME & NOW HE WANT TO INCORPORATE PVT LTD CAN WHAT STEP HE HAS TO TAKEN FOR BRAND NAME

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