This has always been a trend in India to start the business as a Partnership Firm by simply executing a Partnership Agreement. Also, many a times, when the business grows bigger there is a demand to convert it into a Private Limited Company due to several factors which makes Private Limited Company a conducive structure to do business.
Thus, it is very important to know how a business which has been started as a Partnership Firm can be converted into a Private Limited Company.
It is suggested that 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 a partnership firm may consider converting itself into a private limited company. Conversion of a Partnership firm into Private Limited Company requires complying with the requirements of Part XXI of the Companies Act 2013 read with Companies (Incorporation) Rules 2014.
Pre-REQUISITES FOR CONVERSION
Some basic requirements that should be complied with before the procedure of conversion begin:
- Partnership firm should be registered with the Registrar of Firms;
- The Partnership Deed should allow the conversion of Partnership Firm to Private Limited Company;
- All partners of the partnership firm shall become shareholders of the company;
- All the Partners shall give their written consent for such conversion;
Steps for CONVERSION
1) Hold meeting of the partners and pass necessary resolution and receive consent for conversion from the partners.
2) Get consent from the creditors of firm in the form of No Objection Certificate for conversion.
3) Publish an advertisement in at least two newspapers (one english and one vernacular where the office of the partnership firm is situated) in Form URC 2 seeking objections for conversion, if any.
4) Submission of Affidavit from all the partners of the firm that upon conversion they shall surrender all the documents as required under the law.
5) File an application in RUN (Reserve Unique Name) for Name Approval for the proposed company in the portal of the Ministry of Corporate Affairs.
6) Procure the Digital Signature Certificate (DSC) for the Directors and Shareholders of the proposed company.
7) Drafting the Articles of Association (AoA) and Memorandum of Association (MoA) of the proposed company.
8) Simultaneously drafting the other documents required for filing of application for registration of the proposed company.
9) Filing of Forms for incorporation along with the necessary documents in the portal of the Ministry of Corporate Affairs.
On completion of the formalities and upon the satisfaction of the Ministry of Corporate Affairs, the Certificate of Incorporation (CoI) shall be issued.
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