Summary: Converting a partnership firm into a private limited company under Section 366 of the Companies Act, 2013 involves structured legal steps and regulatory compliance. The process begins with a pre-conversion checklist, including ensuring a minimum of three directors, a provision in the partnership deed allowing conversion, clear capital division, and No Objection Certificates (NOCs) from secured creditors. Partners must consent to the conversion through a general meeting, and newspaper advertisements must be published to invite objections. Name approval is obtained through a RUN application, and digital signatures and Director Identification Numbers (DINs) are secured for proposed directors. Form URC-1 is then filed along with supporting documents such as the partnership deed, dissolution affidavits, tax returns, consent statements, and professional compliance certificates. After approval of URC-1, incorporation steps include submitting Form SPICE-32 along with e-MOA, e-AOA, proof of office address, utility bills, and relevant declarations from directors and partners. Compliance with Section 366 requires further publication of public notices and notarized affidavits from partners affirming submission of dissolution documents to relevant authorities. The entire process ensures that all assets, liabilities, legal obligations, and contractual responsibilities of the partnership are transferred to the new company, with the firm being dissolved upon registration.
Pre-Conversion Checklist
Before proceeding with the conversion process, ensure that the following prerequisites are met:
1. Minimum Partners & Directors: A Public Company requires at least 7 partners, while a Private Company must have a minimum of 3 directors.
2. Division of Capital: The capital of the firm should be clearly divided into units.
3. Provision in the Partnership Deed: The partnership deed must explicitly permit the conversion of the firm into a company.
4. No Objection Certificate (NOC) from Secured Creditors: Obtain NOCs from all secured creditors involved with the partnership firm.
5. Newspaper Advertisements: Advertise the conversion in at least one English and one vernacular language newspaper.
6. General Meeting for Consent: A general meeting must be convened where at least 3/4th of the partners are physically present and provide consent for the conversion.
7. Shareholding and Proportion: All partners must be allotted shares in the company in proportion to their capital accounts in the firm as of the date of conversion.
8. Authorization to Proceed: One or more partners must be authorized to handle all formalities and paperwork related to the conversion process.
Step 1: File for Name Approval
1. Digital Signature Application: Obtain digital signatures for the proposed directors of the company.
2. Director Identification Numbers (DIN): Apply for DIN for the proposed directors using Form DIR-3.
3. RUN Application: File for Reserve Unique Name (RUN) with the Ministry of Corporate Affairs (MCA) to ensure the name of the company is available.
Step 2: Submit Form URC-1 for Registration
Once the name is approved, proceed to file Form URC-1 with the following documents:
1. Particulars of Partners: Include information like the address, occupation, etc., of all partners.
2. SRN of RUN: Include the Service Request Number generated for the RUN application.
3. Directors’ Declaration: A declaration from at least two directors confirming the particulars of the partners.
4. Firm Dissolution Affidavit: An affidavit from all partners confirming the dissolution of the partnership firm.
5. Partnership Deed: Provide a copy of the partnership deed signed by at least two partners.
6. Advertisement Copies: Submit a copy of the newspaper advertisements published.
7. Compliance with Stamp Act: A certificate from a professional (CA/CS/CWA) confirming adherence to the Stamp Act, 1899.
8. NOC from Secured Creditors: A No Objection Certificate from all secured creditors.
9. ITR for the Firm: A copy of the firm’s latest Income Tax Return (ITR).
10. List of Proposed Directors: Include details like the addresses, interests in other firms, and consent to act as directors.
11. Affidavit from Directors: An affidavit confirming that the proposed directors are not disqualified under Section 164(1).
12. Consent from 3/4th of Partners: A statement confirming that 3/4th of the partners have agreed to the conversion.
13. Registrar of Firms NOC: Obtain NOC from the concerned Registrar of Firms (if applicable).
14. Company Particulars: A statement detailing the nominal share capital, the number of shares, and the proposed name of the company with the suffix “Limited”.
Step 3: Required Documents for Form URC-1
To complete the filing, include the following documents:
- Firm’s Registration Certificate (if applicable).
- Certified Statement of Accounts from an auditor.
- General Meeting Resolution for the conversion process.
- Details of Partners and their Shareholding.
- Affidavit from All Partners regarding firm dissolution.
- Director’s Declaration verifying partner details.
- Partnership Deed.
- Certificate of Firm Registration (if the firm is registered).
- Copies of Newspaper Advertisements.
- Professional Compliance Certificate for Stamp Act adherence.
- Latest Income Tax Return of the firm.
- Undertaking from Directors confirming compliance with the Stamp Act.
Step 4: After Approval – Filing for Company Incorporation
Once Form URC-1 is approved, follow these steps to complete the conversion:
1. File Form SPICE-32: This form includes filing the e-Memorandum of Association (e-MOA) and e-Articles of Association (e-AOA).
2. First Directors’ Affidavit and Declaration: The proposed first subscribers and directors need to provide affidavits and declarations for compliance.
3. Proof of Office Address: Submit documents like a conveyance deed, lease agreement, or rent agreement, along with recent rent receipts, to verify the office address.
4. Utility Bills: Attach utility bills (not older than two months) to further validate the office address.
5. Partners’ Resolution: Provide the resolution passed by the partners confirming their decision to convert the firm into a company.
Step 5: Compliance with Section 366 of the Companies Act, 2013
Under Section 366, the following provisions apply:
1. Secured Creditors’ NOC: Ensure that secured creditors consent to or provide a no objection to the registration of the company.
2. Public Notice in Newspapers: Publish an advertisement in both English and vernacular languages to notify about the firm’s conversion and invite objections.
3. Notarized Affidavit from Partners: Provide a notarized affidavit from all partners confirming that the necessary documents will be submitted for the dissolution of the firm.
Conclusion
The conversion of a partnership firm into a private limited company is a structured and regulated process. By carefully following the steps outlined above—ensuring that all documents are in place, getting proper consents, and adhering to statutory requirements—your firm can successfully transition into a private limited company. Always ensure compliance with the Companies Act, 2013, and seek professional assistance if needed to navigate this process smoothly.
Section 366
(1) For the purposes of sub-section (2) of section 366 of the Act, the provision of Chapter II of the Act relating to incorporation of company and matters incidental thereto shall be applicable mutatis mutandis for such registration:
Provided that there shall be two or more members for the purposes of registration of a company under this sub-rule:
Provided further that a company with less than seven members shall register as a private company.
(2) A company shall attach and provide the required documents and information to the Registrar along with Form No. URC. 1 in the following manner, namely:-
(a) In case of an application by a Limited Liability Partnership or firm for registration as a company limited by shares –
(i) a list showing the names, addresses, and occupations of all persons named therein as partners with details of shares held by them respectively, showing separately shares allotted for consideration in cash and for consideration other than cash along-with the source of consideration and distinguishing, in cases where the shares are numbered, each share by its number, who on a day, not being more than six clear days before the day of seeking registration, were partners of the Limited Liability Partnership or firm as the case may be;
(ii) a list showing the particulars of persons proposed as the first directors of the company, alongwith Director Identification Number (DIN), passport number, if any, with expiry date, residential addresses and their interests in other firm or body corporate along with their consent to act as directors of the company;
(iii) in case of a firm, deed of partnership, bye-laws or other instrument constituting or regulating the firm and in case the deed of partnership was revised at any time in the past, copies of the principal and all subsequent deeds including the latest deed, along with the certificate of the registration issued by the Registrar of Firms, in case the firm is registered;
10(iv) No Objection Certificate from secured creditor along-with charge holder, if applicable;
Obligations of Companies Registering Under this Part
Every company which is seeking registration under this Part shall,—
(a) ensure that secured creditors of the company, prior to its registration under this Part, have either consented to or have given their no objection to company’s registration under this Part;
(b) publish in a newspaper, advertisement one in English and one in vernacular language in such form as may be prescribed giving notice about registration under this Part, seeking objections and address them suitably;
(c) file an affidavit, duly notarised, from all the members or partners to provide that in the event of registration under this Part, necessary documents or papers shall be submitted to the registering or other authority with which the company was earlier registered, for its dissolution as partnership firm, limited liability partnership, cooperative society, society or any other business entity, as the case may be.
(d) comply with such other conditions as may be prescribed.
Provided that upon registration as a company under this Part a limited liability partnership incorporated under the Limited Liability Partnership Act, 2008 shall be deemed to have been dissolved under that Act without any further act or deed
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