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Convert Partnership into Pvt. Ltd.

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Converting a Partnership into a Private Limited Company: What You Need to Know

When starting a business, many opt for a Sole Proprietorship or Partnership due to its cost-effectiveness and simpler compliance requirements. The hope is that the business will grow, leading to higher revenues. However, as businesses expand, so does the need to limit personal liability and enjoy the benefits of a Private Limited Company.

Converting a Partnership firm into a Private Limited Company brings several advantages. It transforms the business into a separate legal entity, minimizing personal liability risks. Your personal assets are protected, except in cases of fraud. The process involves adhering to the regulations outlined in the Companies Act of 2013, and the company’s shares are privately held. This transition offers greater security and opens up opportunities for business growth.

 

“Key Steps for Transforming Your Partnership Business into a Private Limited Company

  1. Minimum Directors and Shareholders:

– You need a minimum of two directors and shareholders for the conversion to a private limited company.

  1. Registered Partnership Deed:

– Ensure that your partnership deed is registered with the Registrar of Companies.

  1. No Objection Certificate (NOC):

– Obtain a No Objection Certificate from the secured creditors of the partnership firm.

  1. Unique Company Name:

– Choose a unique name for your company, and it must end with ‘Pvt. Ltd.’

  1. Minimum Capital:

– Make a contribution of the minimum required capital.

  1. Registered Office:

– Have a registered office for the partnership firm.

  1. MOA and AOA Formation:

– After completing the conversion procedure, the company should draft its Memorandum of Association (MOA) and Articles of Association (AOA) for incorporation.”

Advantages of Transforming a Partnership into a Private Limited Company

  1. Legal Separation:

– A private limited company is a distinct legal entity, which a partnership firm is not. This means it has its legal identity.

  1. Limited Liability:

– In a private limited company, the liability of shareholders is limited. In a partnership firm, partners are personally responsible for all debts.

  1. Transparency:

– Private limited companies are known for their transparent operations. They offer advantages like limited liability, perpetual succession, and easier access to funds, which partnership firms lack.

  1. Ownership Transfer:

– Shareholders in a private limited company can transfer their ownership with consent. In contrast, partnership firms require adherence to the partnership deed for share transfer.

  1. Compliance:

– Private limited companies generally have more compliance requirements compared to partnership firms.67

Additional Benefits of Switching to a Private Limited Company:

  1. Limited Liability:

– Shareholders have limited liability, which protects their personal assets.

  1. Fundraising:

– Raising funds is easier in a private limited company as there’s no limit on the number of shareholders.

  1. Legal Entity:

– The company is a separate legal entity, ensuring clear separation from personal assets.

  1. Expansion and Diversification:

– Companies have the flexibility to expand and diversify their operations.

  1. Flexibility:

– Shareholding and management can be changed without disrupting business operations.

  1. Ownership Control:

– Control of the company remains within the ownership group, preventing external interference.

  1. Transfer of Assets and Liabilities:

– Assets and liabilities can be transferred smoothly.

  1. Tax Benefits:

– No capital gains tax is imposed on transferring property from a firm to a company.

  1. Perpetual Existence:

– A private company enjoys perpetual succession, meaning it can continue even if the ownership changes.

By converting to a private limited company, you gain legal separation, limited liability, transparency, and various advantages that a partnership firm cannot provide. Additionally, a private limited company offers flexibility and tax benefits, making it a desirable choice for many businesses.

“Documents Needed for Converting a Partnership into a Private Limited Company

Documents Required in E-form URC-1:

  1. Details of all members, including names, addresses, occupations, and share information.
  2. Information about the first directors of the company.
  3. Affidavits from the first directors confirming their eligibility.
  4. Partner details, including their identity and address proof.
  5. A copy of the Partnership Deed and any revisions.
  6. Registration certificate from the Registrar of Firms (if applicable).
  7. A certified statement of the partnership firm’s assets and liabilities.
  8. Income tax documents of the partnership firm.
  9. A copy of the newspaper advertisement.
  10. No Objection Certificate from secured creditors.
  11. Consent from the majority of partners.
  12. A statement specifying the company’s nominal share capital, the number of shares, the amount paid for each share, and the new company name with “Private Limited.”

Documents Required in Spice+ Form:

  1. Declaration from the first directors (DIR-2).
  2. Copies of ID and address proofs for shareholders and directors.
  3. NOC from the property owner.
  4. Proof of the company’s commercial address (rent agreement or lease deed).
  5. Copies of utility bills (not older than two months).”

Converting a Partnership Firm into a Private Limited Company

Step 1: Partner’s Meeting

  • Begin by holding a meeting with the partners to discuss and decide on the conversion. At least 3/4th of the partners should be present in person.
  • Authorize two or more partners to manage the conversion process and handle the required documentation.
  • It’s crucial to obtain written consent from any secured creditors of the firm before proceeding.

Step 2: Name Approval

  • Apply for name approval using the RUN form on the MCA website. Ensure that the name is unique and complies with the Companies Incorporation Rules 2014.
  • The proposed directors and shareholders should provide the necessary attachments for the conversion proposal.

Step 3: Filing Form URC-1

  • Within 30 days of name approval, file Form URC-1 along with the required documents with the Registrar of Companies (ROC).

Step 4: Advertise the Conversion

  • As per the Companies Act, 2013, publish an advertisement about the conversion using Form No. URC-2 in two newspapers.
  • One advertisement should be in English, and the other in the principal vernacular language of the district.

Step 5: Draft MOA and AOA

  • Once the Registrar approves the name and E-FORM URC-1, draft the Memorandum and Articles of Association, along with other necessary documents for incorporation.

Step 6: Certificate of Incorporation

  • File the required documents, including SPICE+, with the Registrar. If the Registrar is satisfied with the submission, they will issue a Certificate of Incorporation (COI) for your new private limited company.

“Transform Your Partnership Firm into a Private Limited Company with BusinessBadhega’s Expert Help

  1. Select Your Plan: Choose a Plan for Professional Guidance
  2. Ask Questions: Share Your Queries about the Conversion
  3. Share Documents: Provide Necessary Documents to Our Experts
  4. Expert Guidance: Receive Expert Assistance and Advice for the Conversion
  5. Take Necessary Steps: Complete All Required Actions
  6. Mission Accomplished: Get Your Work Done!”Note:- Fee Plus Government Charges addon & as per actualย 
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