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Overview

Conversion of Partnership firm into a Private Limited Company is a good option for anyone who wishes to expand small and medium scale enterprises to a large scale one, or for infusion of equity capital. The major benefit of registering a Private Limited Company is that it has the status of a separate legal entity that a Partnership firm does not have. Private Limited Company has Limited Liability whereas in the case of partnership firm partners are personally liable for every debt. Private Limited structure is more transparent than other business structures. PLC has its own advantages such as Limited Liability, Perpetual Succession, easy access to funds, etc.

Convert your Partnership Firm into PLC following the procedure mentioned below.

Requirements:

  1. Registered Partnership firm with minimum 2 or more Partners
  2. Minimum Share Capital shall be Rs. 100,000 (INR One Lac) for conversion into a Private Limited Company
  3. There must be provision in the Partnership deed for converting the firm into Company
  4. There must be an agreement between the partners to convert the firm into Company.
  5. Minimum 2 Shareholders and Directors. However, Directors and shareholders can be same person.
  6. Director Identification Number (DIN) for all the Directors.
  7. Digital Signature Certificate (DSC) for two of the Directors.
  8. NOC from all secured creditors.
  9. Further, 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.
  10. In addition, consent of the majority of members by calling a general meeting for conversion.

Procedure to convert Partnership Firm into PLC

Step by step guide to help you convert Partnership firm into PLC:

  1. Conduct a meeting between the partners for the Conversion of Partnership Firm Into Private Limited Company

– To take assent of majority of its partners, not less than three-fourth of the partners should be present in person.
– To authorize two or more partners to take all steps necessary and to execute all papers, deeds, documents etc.

  1. Apply for DSC and DIN for all directors and shareholders of the company.

Obtain DSC of all directors and shareholders. In addition to that obtain written consent or No Objection Certificate from the secured creditors of the firm, if any.

  1. Obtain name Approval in RUN

File an application in RUN on the MCA website to obtain the name for the proposed company after conversion. Along with various attachments. Further also stating the proposal for conversion of the partnership firm.

  1. File Form URC-1 along with the necessary attachments with ROC

File Form URC-1 within 30 days of name approval.

  1. Publish an advertisement in Two Newspaper

– As per section 374(b) of Companies Act, 2013 firm seeking registration under the provision of Part I of Chapter XXI shall publish an advertisement about registration.
– Seeking objections, if any within 21 clear days from the date of publication of the notice.
– The said advertisement shall be in Form No. URC-2.
– Further, these shall be published in 2 newspapers one in English and other in the principal vernacular language of the district.

  1. Draft MOA and AOA

Therefore, after obtaining name approval, and approval of E-FORM URC-1 from the Registrar, the applicant is required to draft the Memorandum and Articles of Association and other relevant documents necessary for incorporation.

  1. File necessary forms with ROC

File INC-32, INC-33, INC-34 and AGILE along with the earlier mentioned forms on MCA Website.

  1. Once the Registrar in satisfied on the basis of documents and information filed by the applicants,

He shall issue a certificate of incorporation in Form No. INC.11.

  1. Intimate ROC under which it was previously registered.

Along with documents for its dissolution as a firm.

List of documents to be attached

With Form URC-1

  • A list showing the names, addresses, and occupations of all persons named therein as members with details of shares held by them.
  • Also, 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 section 164(1). Further that all the documents filed with the Registrar for registration of the company contain correct, complete, and true information to the best of his knowledge and belief.
  • Partnership deed, along with the revised deeds, in case the firm is regd.
  • A statement of assets and liabilities of the partnership firm duly certified by a chartered accountant.
  • Further, a copy of the latest income tax return of the Partnership Firm.
  • A statement specifying the following particulars:
  • The nominal share capital of the company and the division of shares.
  • The number of shares taken and the amount paid on each share.

With Form_INC-32, INC-33, INC-34

  • DIR-2 Consent to Act as Director.
  • INC-9 Declaration by subscriber/first director.
  • KYC document of Directors and shareholders of the proposed converted company.
  • Utility Bill (not older than two months).
  • Lease deed/ title deed for the regd. office address of the company.
  • Detail of main and other objects of the company.

Benefits of conversion from partnership to a priva

Limited Liability of Owners: The liability of members/directors is limited to an extent of capital contribution agreed by the members of the company. The loss or debt of a company cannot be assigned to members even at liquidation. Further, one member is not held responsible for the actions of negligence or misconduct of any other member.

Separation of Management and Ownership: The separate ownership and management help both to focus on their potential works. The shareholders assign responsibility to directors for operating and running the company without losing control in form of voting.

Separate legal entity: A partnership is not a separate legal entity. If one of the partners dies or retires, or has to leave the firm, the partnership ceases to exist and so a new partnership has to be formed. But this is not the case of a private limited company. The private limited company is a separate legal entity hence it also provides the capacity to sue third parties.

Raising Capital: Raising Capital is easier in the Pvt. Ltd. Company as it allows the members to participate without taking on any personal accountability; unlike the general partnership where all common partners have unrestrained liability. The organization itself provides a number of ways to raise funds in the form of private equity, ESOP, and more.

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