It is also suggested to convert the Partnership Firm into a private limited company, if the scale of operation is expanding and also if it is becoming difficult to control the management of the firm and the partners wishes to limit their liabilities and secure their personal assets. Conversion of a Partnership firm into Private Limited Company requires complying with the requirements of Part IX of the Companies Act. Generally registration of partnership firm is not mandatory but the process of conversion becomes very difficult if the firm is not registered.
Pre conditions to be fulfilled
Some basic requirements that should be complied with before the procedure of registration begin:
- Minimum Seven Partners required;
- Minimum Share Capital shall be Rs.100000;
- Firms’ paid up capital or authorized capital is to be divided into shares;
- Profit sharing ratio should be on the basis of capital employed by partners;
- The object clause of memorandum (to be drafted) should permit the new company to acquire the business and the assets and liabilities of the partnership firm.
Steps for incorporation
1) Ensure that the firm is registered with the Registrar of Firms.
2) A meeting of the partners is to be held and assent of majority of the partners is required for purposes which includes deciding the name of the proposed company, to authorize at least one of the partners to register all the documents with the registrar of companies, to prepare a supplementary partnership deed which should include the basic contents of object clause of Memorandum of Association.
3) Memorandum of Association and Articles of Association is to be drafted.
4) Application of name approval should be obtained by filling Form 1A with the following documents:
- Certified true copy of the partnership deed, latest balance sheet
- Consent of all the partners for the conversion
- Certified true Copy of the resolution passed by the firm in this regard.
5) After getting the name approved, Form 18 and Form 32 is to be filed with the registrar along with two sets of Memorandum and Articles of Association of the Company.
6) Thereafter Form 1 along with Form 37, 39, 40 & 41 is to be filed.
7) All the partners and other persons intending to become director should apply for DIN (Director Identification Number).
8) At least one directors should have DSC (Digital Signature Certificate)
9) Declaration by two partners that the documents submitted have been verified.
10) Filling Fees.
On completion of the formalities and upon the satisfaction of the registrar, the Certificate of Incorporation will be issued by the registrar.