How to Convert a Partnership Firm to a Private Limited Company

Pre-requisites for Conversion:

1. Consent of Partners:
   • Hold a meeting to obtain the consent of the majority of the partners for the conversion.
2. Registration with Registrar of Firms:
   • Although not mandatory, it is desirable if the firm is registered with the Registrar of Firms.
3. Authorization:
   • Authorize two or more partners to take all necessary actions for the conversion.
4. Consent from Secured Creditors:
   • Obtain consent from secured creditors, if any.
5. Partnership Deed Clause:
   • Ensure the partnership deed includes a clause allowing for the conversion of the firm into a company. If this clause is not present, amend the deed to include it.
6. Asset Valuation:
   • There should be no revaluation of the firm's assets in the three years preceding the conversion.
7. Shareholding Pattern:
   • The shareholding pattern of the new company should be the same as the partners’ capital ratio in the firm.
8. Continuity of Rights and Liabilities:
   • Registration will not affect the rights or liabilities of the company in respect of deeds done before registration.

Steps for Conversion:

1. Name Reservation:
   • Apply for name reservation through the e-Reserve Unique Name (RUN) form. This must be done within 20 days from the date of name approval.
2. Publication in Newspapers:
   • Publish Form URC-2, which provides details about the company's registration, in two newspapers (one in English and one in a vernacular language) to invite any objections within 21 days of publication.
3. Submission to ROC:
   • Submit Form URC-1 to the Registrar of Companies (ROC) along with the usual incorporation forms like SPICE+. Form URC-1 requires details such as the SRN of the RUN form, name of the firm, registration number, number of partners, date of the partnership deed and resolution, amount of property, and secured debts, if any.
   • Attach necessary documents, including:
     • Details of partners and proposed first directors
     • Copy of the principal and revised partnership deed
     • NOC from secured creditors
     • Copy of the latest IT return
     • Declaration from the directors to comply with The Indian Stamp Act, 1899
     • Notarized affidavit of the dissolution of the firm
     • Copy of URC-2 advertisement
     • Certificate from a CA/CS/CWA certifying compliance
4. Other Documentation:
   • Most other documentation remains the same as that required when incorporating a new company.

Documents Required:

1. Identity and Address Proof:
   • PAN card and Aadhar card of all partners
   • Address proof of all partners (not older than 2 months)
2. Financial Documents:
   • Statement of assets and liabilities of the partnership firm, certified by a practicing Chartered Accountant, dated not earlier than 30 days before filing Form URC-1
   • All income tax-related documents of the partnership firm
3. Advertisements and Deeds:
   • Copy of the newspaper advertisement
   • All registered deeds of the partnership firm, including supplementary deeds
4. Consents and Certificates:
   • NOC from all secured creditors
   • Consent from the majority of partners
   • Certificate of registration by the Registrar of Firms (if registered)
5. Office Proof:
   • Electricity bill of the proposed company's registered office (not older than 2 months)
   • Ownership proof of the registered office
6. Company Details:
   • Details of authorized, paid-up capital, and shareholding pattern
   • Contact number and email ID of the proposed company
   • DIN number of all partners (if any)
7. Personal Details:
   • Contact number and email ID of all partners
   • Details of education qualifications, place of birth, duration of stay, and occupation of partners
   • Passport-size photographs of all partners
8. Digital Signature:
   • Digital Signature Certificate (DSC) of all partners

Summary

Converting a partnership firm into a private limited company involves several steps, including obtaining the consent of partners, ensuring the partnership deed allows for conversion, applying for name reservation, publishing details in newspapers, and submitting the necessary forms and documents to the ROC. Ensuring compliance with all legal requirements and having the appropriate documentation will facilitate a smooth conversion process.

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Article Compiled by:-

~Neel Lakhtariya 

(LegalMantra.net Team)

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.