In this article we will discuss about the Conversion of partnership firm into a private limited company in depth. Most partnership firms in India come to a stage where they want to diversify, seek capital or obtain the reputation that a private limited company has. Shares: They main benefits of converting a partnership firm into a private limited company are as follows The financing is more easily available in this type of business format The liability of the shareholders is limited The business has more credibility in the markets. To enable you understand how it is done and why it needs to be done, here are the steps of conversion of a partnership firm into a limited company.

Why to Convert a Partnership Firm into a Private Limited Company?

Converting a partnership firm into a private limited company provides the following advantages:

1. Limited Liability Protection: Partners have unlimited liability in a partnership firm and therefore personal assets can be used to meet the organizations liabilities. Like other private limited companies, the liability of the member is limited to the amount they have invested in the share capital.
2. Access to Funding: Private limited companies can get venture capital; issue shares; and obtain loans from banks with a great ease hence can expand.
3. Legal Recognition and Credibility: a private limited company is better known and accepted by suppliers, customers and lenders hence increasing the market appeal of the company.
4. Perpetual Succession: Whereas, partnership business is dissolved as soon as any partner dies, on the other hand, a private limited company has a feature of perpetual succession; means business goes on even the shareholders changes.

Process to Convert the Partnership Firm into a Limited Company

Changing the legal status of a partnership firm to a limited company has substantial legal procedures and papers. Here is a step-by-step guide:

1. Obtain Consent of Partners

The first process involves the consent of all the partners to turn the partnership firm to a private limited company. This consent should also be in writing and the record should go into the official file to indicate a conversion has been effected.

2. Name Approval from ROC

Contact the ROC for this purpose and to know whether the proposed name of the company is available or not. It should also adhere to the Companies Act of 2013 and, wherever possible, the proposed name should be the name of the original partnership firm to maintain name recognition. To get name approval, you have to fill the name approval form on the MCA portal or Ministry of Corporate Affairs.

3. Draft the MOA and AOA

Jointly develop the Memorandum of Association (MOA) and the Articles of Association (AOA), which will be the main charter of the company. These documents should include the mission and vision statement of the business, the company’s line of business and the operational conduct.

• MOA: Establishes the goals and specific mandated areas of the new firm together with the required capital for its establishment.
• AOA: Describes relations with directors and officers, internal regulation, directors’ responsibilities, and general and special meetings of shareholders.

4. Action Plan for the Partnership Dissolution Agreement

As the business partnership will cease to exist in the future, it might be necessary to develop an agreement on dissolution. This agreement draws the curtain on this partnership; all assets and liabilities and business activities are taken over by the private limited company.

5. MCA online – Register Incorporation

Submit FORM SPICe+ which is the application for incorporation of company electronically besides other forms.

• Company incorporation.
• PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number).
• Professional Tax (if applicable).
• GST (Goods and Services Tax) registration (if needed).

Submit MOA, AOA, partnership dissolution deed, identity proof of directors, and the latest income tax return of the partnership firm of the firm.

6. Transfer Assets and liabilities

After getting the approval from the ROC for the incorporation of the new company, physical transfer all assets and liabilities of the partnership firm to the new born private limited company. This includes money in checking or savings account, land, patents, trade secrets, copyrights, trademarks and others.

7. Issue Shares to Partners

In the light of the Companies Act, 2013 partners of the erstwhile partnership firm are required to be allotted the shares in the new private limited company in the proportion of their respective initial investment made while converting the firm into a company. This action establishes ’’the change of possession from one owner of the business to another ’’, in this case, from the partnership firm to the private limited company.

8. Sign up with the Income Tax Department

On incorporation, make changes in the status with the Income Tax Department. PAN of the partnership will be required to be relinquished; new PAN and TAN for the private limited company will be obtained.

9. Change GST Registration Status (If Any)

If the partnership firm had GST identification number, then the transfer of the same to the new entity or if a new entity is formed then apply for new GST number for the private limited company.

List of Documents Needed for Conversion of Partnership Business into Private Limited Company

The following documents are typically required for converting a partnership firm into a limited company:

1. PAN Card of all partners and the partnership firm 50 Montgomery Place, Broad Street, Cincinnati, Ohio, USA.
2. Identity and address proof other than the Aadhar Card, Passport, Voter ID of the partners and proposed directors;.
3. Utility Bill issued for the office address.
4. Partnership Deed and Dissolution Agreement.
5. Agreement with Partners for conversion.
6. Acknowledgement and consent from secured creditors in case they exist in the business, NOC.
7. MOA and AOA for the new company.

Important Considerations for Conversion

• Tax Implications: In the case of transferring all the assets, check on the various taxes required under the Income Tax Act.
• Compliance with the Companies Act, 2013: Private limited Companies have to follow annual/ statutory compliances such as conducting board meetings, filing of the financial statements and other compliances as mandated by law.
• Trademark and Brand Rights: If the partnership firm has some Trademark, these should be transfer or re–registered in name of the private limited company.

Conclusion

There are many benefits that can be derived from changing a partnership firm into a limited company such as limiting the company liability, unlimited life of the company, and easy taxing. Nonetheless, the change process should follow the legal procedures and paperwork to enhance transition and conformity to the policy. It is, therefore, important for the partnership firms to remain abreast with the set down procedures herein outlined so that such firms can easily be converted into private limited companies with the benefits of credibility and growth pertaining thereto.

Transferring a partnership firm to a private limited company is a good approach for the improvement and betterment of prospects for the business, thus help in the securing of investors or funds and achieving greater statutory compliances as the business category expands.

DISCLAIMER: The information provided in this article is intended for general informational purposes only and is based on the latest guidelines and regulations. While we strive to ensure the accuracy and completeness of the information, it may not reflect the most current legal or regulatory changes. Taxpayers are advised to consult with a qualified tax professional or you may contact to our tax advisor team through call +91-9871990777 or info@semantictaxgen.in