Partnership to Private Limited Company

Partnerships and private limited companies are two common forms of business organizations that serve different purposes and have distinct legal structures. A partnership is an association of two or more individuals who agree to carry on a business together and share its profits and losses. On the other hand, a private limited company is a separate legal entity with limited liability, owned by shareholders and managed by directors.

BENEFITS

● Limited Liability: One of the main benefits of a private limited company is limited liability protection. Shareholders' liability is limited to the amount they have invested in the company.

● Separate Legal Entity: A private limited company is a separate legal entity from its shareholders. This provides the advantage of perpetual existence, meaning the company can continue to exist even if the partners decide to leave or pass away. It offers stability and continuity to the business.

● Raising Capital: Converting to a private limited company can make it easier to raise capital. Private limited companies have the option to issue shares to investors, which can attract equity financing from individuals, venture capitalists, or angel investors. This allows for expansion and growth opportunities that may not be available to a partnership.

● Credibility and Perceived Stability: Private limited companies are often perceived as more credible and stable compared to partnerships. This can enhance the company's reputation and attract potential customers, suppliers, and business partners. It may also facilitate access to government contracts, loans, and other business opportunities.

● Transfer of Ownership: Private limited companies provide ease of ownership transfer. Shares can be easily transferred or sold to other individuals or entities, allowing for changes in ownership and succession planning. This flexibility is beneficial when partners want to exit the business or new investors want to come on board.

● Tax Benefits: Depending on the jurisdiction, there may be tax advantages associated with operating as a private limited company.

● Employee Recruitment and Incentives: Private limited companies often have more options for employee recruitment and retention. They can offer employee stock options (ESOPs) or equity-based incentives etc.

PROCESS OF CONVERSION

Step 1: Conducting a meeting of the partners for the Conversion of the Partnership Firm into a Private Limited Company

Step 2: Adding the conversion Clause in the deed of Partnership if the same is not there in the existing Partnership deed.

Step 3: Inform the Registrar of firms to take on record the amendment or execution of Supplementary deed mentioning the Partnership firm can be converted into Company with the mutual consent of all or majority of partners.

Step 4: Apply for DSC and DIN of All the directors and shareholders of the Company.

Step 5: Apply to reserve the name of the Company through Form RUN Reserve Unique Name.

Step 6: Publish an advertisement in E-form URC -2 about registration in two newspaper (English daily & Vernacular) for seeking any objection within 21 days of Publish.

Step 7: A copy of the notice, as published in the newspaper and the copy of the notice served on to the concerned Registrar of firms along with proof of service, is required to be submitted.

Step 8: Filing of Various Forms and Documents with the Registrar of Companies for conversion. Likewise form URC-1, INC-32, INC-33, INC-34 and AGILE. Along with the earlier mentioned forms so many other documents are required to be filed as an attachment. The detail list of attachments these forms will be described further for your understanding.

Step 9: If the Registrar in satisfied on the basis of documents and information filed by the applicants, decides that the applicant should be registered, he shall issue a certificate of incorporation in Form No. INC.11.

Step 10: After obtaining the certificate of registration under section 367 of the Act, an intimation to this effect shall be given within fifteen days of such registration to the concerned Registrar of Firms, under which it was originally registered, along with documents for its dissolution as a firm.

DOCUMENTS REQUIRED

• Memorandum of Association (MOA
• Articles of Association (AOA)
• No Objection Certificate (NOC)
• Shareholder and Director Agreement
• Application in Form URC-1
• List of Partners and Their Consent
• Director Identification Number (DIN) and Digital Signature Certificate (DSC)
• Address Proof
• Proof of Identity: such as Aadhar card, passport, voter ID, etc.
• Proof of Address: such as Aadhar card, passport, voter ID, etc.
• Declaration of Compliance
• Name Reservation Certificate

POST - CONVERSION COMPLIANCES

● Update Statutory Records: Ensure that all statutory records, including the Memorandum of Association (MOA), Articles of Association (AOA), and Register of Members, are updated with the relevant changes reflecting the new private limited company structure.

● Share Certificates: Issue share certificates to all the shareholders of the private limited company, indicating their ownership of shares in the company.

● Changes in Tax Registrations: Update tax registrations to reflect the new status of the private limited company. This includes applying for a new Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) for the company.

● Goods and Services Tax (GST) Registration: If applicable, obtain a new GST registration for the private limited company.

● Professional Tax Registration: If the state where the company is registered requires professional tax registration, ensure that it is obtained.

● Opening of Bank Accounts: Open a new bank account in the name of the private limited company and close the partnership firm's bank account.

● Compliance with Company Law: Comply with all company law requirements applicable to private limited companies, including conducting regular board meetings, annual general meetings (AGMs), and filing annual financial statements and annual returns with the Registrar of Companies (ROC).

● Appointment of Auditors: Appoint an auditor or auditors for the private limited company within 30 days of its incorporation.

● Contracts and Agreements: Review and amend all existing contracts and agreements that were previously in the name of the partnership firm to now be in the name of the private limited company.

● Transfer of Assets and Liabilities: Transfer all assets, liabilities, and contracts of the partnership firm to the private limited company.

● Compliance with Industry-Specific Regulations: If the business activities of the company are subject to specific regulations or licenses, ensure compliance with those requirements.

● Other Legal and Regulatory Compliances: Comply with other legal and regulatory requirements that are specific to the industry and business activities of the private limited company.

FAQS

Q: What are the minimum capital requirements to convert partnership into private limited?
Ans.Following are the minimum requirements: – Appointment of minimum 2 directors, out of which one must be a resident of India.
– Minimum requirement of 2 shareholders for this registration. Further, an individual may become shareholder and director at the same time.
– A place of business in India must be provided as a regd. office address

Q: What is the main advantage of converting a partnership to a private limited company?
Ans: One of the main advantages of converting a partnership to a private limited company is limited liability. In a partnership, the partners are personally liable for the debts and liabilities of the business. However, in a private limited company, the liability of shareholders is limited to the amount unpaid on their shares. This means that personal assets of shareholders are generally protected from the company's debts and liabilities.

Q: Is it mandatory to convert a partnership firm into a private limited company?
Ans: No, it is not mandatory to convert a partnership firm into a private limited company. The decision to convert depends on various factors such as business expansion plans, the need for limited liability, access to capital, and compliance requirements. Partnerships may continue to operate as partnerships or choose to convert to private limited companies voluntarily.

Q: How long does the conversion process from a partnership to a private limited company take?
Ans: The duration of the conversion process can vary depending on the country and the efficiency of the registration authorities. Typically, it may take anywhere from a few weeks to a couple of months to complete the conversion process. Factors that may affect the timeline include the complexity of the business, the completeness of documentation, and the processing time of the Registrar of Companies.

Q: Can the existing partners become shareholders of the private limited company after conversion?
Ans: Yes, the existing partners of the partnership firm can become shareholders of the private limited company after conversion. They can subscribe to shares in the new company as per the agreed shareholding pattern. The terms of their shareholding and participation in the new company will be governed by the shareholder agreement and the Articles of Association of the private limited company.

Q: Can a partnership firm with foreign partners be converted into a private limited company?
Ans: Yes, a partnership firm with foreign partners can be converted into a private limited company, subject to compliance with the laws and regulations of the country where the conversion is taking place. Depending on the country, there may be specific requirements or approvals needed for foreign participation in a private limited company.

Q: What are the tax implications of converting a partnership to a private limited company?
Ans:The tax implications of converting a partnership to a private limited company can vary based on the tax laws of the country and the specific circumstances of the conversion. Generally, there may be capital gains tax implications on the transfer of assets from the partnership firm to the company, and the new private limited company will be subject to corporate income tax on its profits. It is crucial to consult with a tax advisor or accountant to understand the tax implications specific to your situation.

Q: Can the business name be retained after conversion to a private limited company?
Ans: It is possible to retain the business name after conversion to a private limited company, but it is subject to the availability of the name under the Companies Act and the approval of the Registrar of Companies. The name may need to be reserved separately before the conversion process. If the name is not available or not approved, the company will need to choose a new name during the conversion process.

Q: Is capital gain or stamp duty charged on conversion?
Ans: No Capital Gains tax or stamp duty shall be charged on transfer of property from Partnership firm to a Private Limited Company.

Q: How long does it take to convert a partnership to a private limited company?
Ans: The total timeline for converting a partnership to a private limited company can vary, but it generally takes around 4 to 8 weeks. Factors such as the efficiency of the registration authorities, completeness of documentation, and country-specific requirements can affect the timeline.