How to convert a partnership firm into a private company

Published On: Apr 21, 2021Last Updated: Oct 14, 20233.5 min read

When a business is looking to convert the existing partnership firm into a private company, several compliances need to be taken care of. Before that, let us check out which are the applicable laws under such circumstances-

– Part A of chapter XXI.

– Section 366 to 374 of the Companies Act, 2013.

– The companies (authorized to registered) rules, 2014.

Methods and modes to converting the partnership firm into a private company

  • Set up a new company according as mentioned under the companies act, 2013 with the conversion form.
  • Make an execution deed to transfer the business together with all the liabilities and assets.
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NOTE – there has to be a provision in the partnership deed for conversion.

Desideratum to convert the partnership firm into a private company.

  • Partnership firm has to be registered with the registrar of firms.
  • There has to be a minimum of 2 partners to set up the same.
  • Amending the partnership deed – mention a clause for conversion in the deed, if needed.
  • All the associates of the partnership firm should become shareholders of the company in the same proportion in that their capital accounts stood in the books of the firm on the conversion date.
  • Majority of members’ consent by calling a general meeting (GM) for conversion.

Step-by-step guide for conversion

1. Convey a meeting of the partners to transact to the following business;

  • To authorize one or more partners to take all the necessary steps and implement all the papers, documents, deeds, and so forth according to the firm’s registration as a company.

– To implement a supplementary partnership deed to align it with the necessity as given below;

– There have to be at least two partners in the partnership firm.

– The firm might be registered with the registrar of firms.

  • Need to have a fixed capital divided into units.
  • There has to be a provision to convert a firm into a company.
  • Requirement of an agreement by the partners to convert the partnership firm into a private company. It can be done through the contract in writing to this effect that the partner’s resolution to convert can be achieved as annexure.

Step 2. Implement a settlement deed.Chosen the draft has to be advertised in the form URC 2 in the newspaper.

Step 3. Acquire the DSC (digital signature certificate).

Step 4. Acquire DIN in the form of DIR-3.

Step 5. Apply for the name in the RUN (reserve unique name).

Step 6. Publish an advertisement in the E-form URC-2 about the registration in 2 newspapers (Vernacular and English) to seek any opposition within 21 days of publishing.

Step 7. After acquiring the name’s availability in terms of the provisions of section 4 of the act, a company should link the needed documents and information to the registrar along with form no. URC-1 (conversion form).

Step 8. Submit E-form <SPICE+> (application for incorporation) for providing all the details about all directors and subscribers of the converted company.

What next when you are done with these formalities?

– Registrar would register the company and allocate a certificate of incorporation (COI).

Required documents

  1. For DIN – PAN card/Aadhar card/Passport image’s signed copies.
  2. A newspaper advertisement in the form of URC-2.
  3. Details necessary for submission of form URC-1.

– Partnership firm/registration’s name (if any).

– SRN of RUN (submitted form).

– Number of partners.

– Date of partnership deed.

– Date of partners resolution.

– Total amount of property – secured debt (if any).

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Needed attachments

– Partners’ particulars and shares owned by them.

– Affidavit duly notarized from all the partners for dissolution of the firm.

– Declaration by two directors verifying the partners’ particulars.

– Partnership deed’s copy.

– Registration certificate of the entity’s copy, if any.

– Newspaper advertisement’s copy.

-CS/CA/CWA’s certificate certifying the compliance with stamp act’s provisions, to an applicable extent.

– Latest income tax return’s copy.

– Undertaking from directors for compliance with the necessity of Indian stamp act, 1899.

Submitting form SPICE-32 and E-MOA and E-AOA

– Affidavit and declaration by 1st subscribers and directors.

– Office address’s proof (lease deed/conveyance/rent agreement and so forth along with rent receipts).

– Utility bills’ copy (not older than two months).

– Partners’ resolution concerning conversion.

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Jaina Shah
About the Author

Jaina Shah

Jaina Shah is associated with as an operational executive and business adviser. Her prowess is in corporate management, legal drafting and IPR. She holds degree of B.Com- LLB.