CONVERSION OF PARTNERSHIP INTO PRIVATE COMPANY
Anyone can choose a Private Limited Company to build a scalable business. It’s the most famous legal structure for a business. The major benefit of registering a private limited company is that it gives a status of a separate legal entity that a partnership firm does not have. In the case of a partnership, a partner’s personal assets are attached and they would be held personally responsible for every debt or liability that the business incurs. Hence, with the expansion of business, if partners want to increase their credibility and put the limited liability on their members, it is more favourable for the partners to convert their partnership into a private limited company. Even though statutory compliance for a private limited company are higher than those of a partnership firm, it gives the company more opportunities to flourish and expand its reach. Conversion of a Partnership firm into a Private Limited Company is a good option for anyone who wishes to expand small and medium scale enterprises to a large scale one, or for infusion of equity capital.
The Advantages of Having a Private Company
A Private/Public limited company has many advantages over proprietorship and partnerships, as elaborated below.
The first and foremost benefit of doing business via a company is the limited liability conferred upon the company's directors and shareholders. As a sole trader or partnership business, the personal assets of the proprietor or partners can be at risk in the event of a failure of the business, but this is not the case for a Company. Unfortunate events like business failures are not always under an entrepreneur’s control; hence it is pivotal to secure the personal assets of the businessman in the event of crises.
A private limited company is a legal entity, a juristic person established under the Act. It has its existence separate from its directors and members. Private limited company status enables you to be taken more seriously than a proprietorship/partnership status does
Operating as a private limited company often gives suppliers and customers a sense of confidence in a business. Larger organisations, in particular, will prefer in dealing with private limited companies than proprietorship/partnership organisations
Another important characteristic of a private limited company is perpetual succession. It is a popular saying that the directors may come and go the members may come and go, but the existence of a company remains forever. A company once incorporated remains alive unless and until it is wound up by complying with the provisions of Law. The death, disability or retirement of any of its members does not affect the continuity of the company, irrespective of change in its membership
For entrepreneurs going for hi-tech or high capital outlay projects, it is always advantageous to go in for a company form of organisation. Where the financial stake involved is high, it is found that banks and financial institutions while sanctioning financial assistance, insist on having a private limited company
Where it is proposed to sell the business as a going concern, all that is required is to transfer the entire shareholding to the purchaser and thus facilitate easy change in management and ownership. This will save time and money for the Promoters. A huge amount of stamp duty is saved.
In the company form of organisation, it is possible for a company to make a valid effective contract with any of its shareholders/directors. It is also possible for a person to be in control of a company and at the same time be in its employment. Thus, a person can at the same time be a shareholder, director, creditor and employee of the company.
A company enjoys better avenues for borrowing of funds. It can issue debentures, secured as well as unsecured, accept deposits from the public, etc. Even banking and financial institutions prefer to render large financial assistance to the company rather than partnership firms or proprietary concerns. A company enjoys better avenues for borrowing of funds.
Sole traders and partnerships pay income tax. Companies pay corporation tax on their taxable profits. There is a wider range of allowances and tax-deductible costs that can be offset against a company's profits.
Requirements:
Procedure of Conversion
Hold a meeting of all the partners of Partnership Firm and take assent for the conversion from its partners. Since the liability of the members of the firm is unlimited when a firm desires to register itself as a company as a limited company, the assent of the majority is required, not less than three-fourth of the partners should be present in person.
Also Written consent or No Objection Certificate is to be obtained from the secured creditors of the firm if any.
An application needs to be filed with the Registrar of Companies (ROC) to obtain the name for the proposed company after conversion, with various attachments stating the fact that the partnership firm is proposed to be converted under the Companies Act, 2013.
Pursuant to clause (b) of section 374 of the Act, firm seeking registration under the provision of Part I of Chapter XXI shall publish an advertisement about registration under the said Part, seeking objections, if any within twenty-one (21) clear days from the date of publication of notice and the said advertisement shall be in Form No. URC. 2, which shall be published in a newspaper, in English and in the principal vernacular language of the district in which office of such firm situated and should be circulated in that district.
File an affidavit, duly notarised, from all the partners to provide that in the event of registration, necessary documents or papers shall be submitted to the authority with which the firm was earlier registered, for its dissolution as partnership firm consequent to its conversion into private limited company.
Filing of necessary forms with ROC for the approval of conversion and for registration of firm into the Private Limited Company along with all the necessary attachments which specify the fact of conversion and also all the other basis charter documents like MOA, AOA, etc which are required in case of registration of the company under the Companies Act, 2013
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