Give the firm a separate legal identity, cap what the partners are personally liable for, and open the ways of raising money that a partnership cannot use.
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What the company gives the partners that the firm cannot, what it costs in compliance, and why firms choose LegalWiz.in.
The main benefit of registering a private limited company is the separate legal identity a partnership firm does not have. In a partnership the partners’ personal assets are attached to the business and they are personally responsible for every debt and liability it incurs.
So as a business expands, and the partners want to raise its credibility while limiting what its members are exposed to, converting the firm into a private limited company is the usual move. It also opens ways of raising money, private equity and ESOPs among them, that are simply not available to a partnership.
The statutory compliances of a private limited company are higher than a partnership firm’s, and that is the trade. What it buys is a structure with more room to grow and a wider reach, and the accumulated loss and unabsorbed depreciation of the firm carry into the successor company for a further eight years.
Your relationship manager and the filing team handle everything below. You supply the documents once and approve the drafts.
Government fees and stamp duty are charged at actuals. A no objection certificate is needed from every secured creditor of the firm before the conversion can be filed.
This builds the company’s brand, and a coined word is the strongest choice because it is least likely to already be taken.
The second part of the name should suggest the activity the company carries on.
The name must end with "Private Limited" as a suffix.
The firm’s existing name can usually be applied for, so the brand you have built carries across. Approval is at the Ministry’s discretion.
The liability of the members and directors is capped at the capital contribution agreed between the members. The loss or debt of a company cannot be assigned to its members even at liquidation, and no member is held responsible for another’s negligence or misconduct.
Separating the two lets each focus on its own work. The shareholders assign responsibility for operating and running the company to the directors without losing control, which they keep through their votes.
A partnership is not one: if a partner dies, retires or leaves, the partnership ceases to exist and a new one has to be formed. A private limited company is a separate legal entity, which also gives it the capacity to sue third parties.
It is easier in a private limited company, because members can participate without personal accountability, unlike a general partnership where every common partner has unrestrained liability. The structure itself offers private equity, ESOPs and more.
The two columns that matter to you are the first and the fourth. The rest are here because a firm converting is sometimes better served by an LLP.
| Attribute | Private Limited Company | One Person Company | Limited Liability Partnership | Partnership Firm | Proprietorship Firm |
|---|---|---|---|---|---|
| Setting it up | |||||
| Applicable law | Companies Act, 2013 | Companies Act, 2013 | LLP Act, 2008 | Indian Partnership Act, 1932 | No specified Act |
| MandatoryMust be registered with the MCA under the Companies Act | MandatoryMust be registered with the MCA under the Companies Act | MandatoryMust be registered with the MCA under the LLP Act | OptionalCan be registered or unregistered, though there are clear benefits to registering with the State ROF | Not requiredMSME or GST registration is treated as valid proof for a proprietor firm | |
| 2 to 200Excluding present or former employees who are members | Only 1A single shareholder | 2 to unlimitedMinimum 2 designated partners, no cap on the total | 2 to 50Minimum 2 partners, maximum 50 | Only 1The proprietor is the sole owner | |
| AllowedUnder RBI and FEMA rules, usually via the automatic route | Not allowedMember, nominee and director must be Indian residents | AllowedUnder RBI and FEMA rules, usually via the automatic route | AllowedAn NRI can be a partner, subject to RBI regulations | Not allowedA foreign national cannot own a proprietorship business in India | |
| What you are liable for | |||||
| YesCan enter contracts and own assets in its own name | YesCan enter contracts and own assets in its own name | YesCan enter contracts and own assets in its own name | NoThe firm has no identity separate from its partners | NoProprietor and business are the same, and share one PAN | |
| LimitedLimited to the share capital subscribed, unless the MOA defines it otherwise | LimitedLimited to the share capital subscribed | LimitedLimited to the contribution agreed in the LLP agreement | UnlimitedPartners are jointly and severally liable for the debts | UnlimitedClearing the firm’s liabilities is the proprietor’s job | |
| YesSurvives a change of ownership or management | YesBut it can only ever have one owner | YesA change of partners does not affect the LLP | NoA change of partner dissolves or reforms the firm | NoDeath or insolvency of the proprietor ends the business | |
| YesShares transfer easily, which is why external investors prefer it | Restricted100% of shares must move to change the single owner | YesBy consent of the other partners, via a supplementary deed | RestrictedThe partnership deed sets out the restrictions | NoA proprietorship cannot be transferred | |
| What it costs you every year | |||||
| MandatoryAn auditor must be appointed within 30 days | MandatoryAn auditor must be appointed within 30 days | As applicableRequired once turnover crosses ₹40 lakh or contribution crosses ₹25 lakh | Not mandatoryTax audit applies based on turnover | Not mandatoryTax audit applies based on turnover | |
| Moderate25% for companies with turnover up to ₹400 crore | Moderate25% for companies with turnover up to ₹400 crore | High30% on business profits, with tax-efficient distribution to partners | High30% on business profits | LowTaxed at the proprietor’s individual income tax slab | |
| HighThe heaviest of the five, both annual and event based | HighSimilar to a company, without an AGM | ModerateAnnual filing plus a few event based filings, lighter than a company | LowAn annual ITR, and little else | LowNo separate ITR, and very little else | |
| Next step | Get started | Know more | Know more | Know more | Know more |
Swipe the table sideways, Private Limited Company stays in view. Open any attribute to read the detail behind all 5 answers.
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JIGNESH BHAI, I wanted to take some time to sincerely thank you for your incredible support with my MSME registration through LegalWiz. From start to finish, Jignesh Bhai, your guidance, patience, and professionalism made what could have been a stressful and confusing process feel completely smooth and manageable. You took the time to explain every step clearly, answered all my questions patiently, and ensured that nothing was left uncertain. Your attention to detail and dedication truly stood out, and it gave me a lot of confidence throughout the process. I really appreciate the effort, care, and commitment you put into helping me. Jignesh Bhai, your service has been exceptional, and I couldn’t have asked for a better experience. Heartfelt thanks once again!
Highly recommend services from Legalwiz. Got my LLP conversion process faster. Helpful staff.
Limited Liability PartnershipHad a great experience working with the team! They handled my LLP registration smoothly, guided me clearly through every step, and were always quick to respond. Really appreciate their professionalism and support. Highly recommended!
They are so quick and highly professional and experienced in the industry to carry out the requirement. Loved their services.
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File INC-20AI am very much satisfied with their service for INC 20 A. i will recommend them and definitely will keep in mind for any other service.
Close a Private Limited Companyexcellent, i appreciate accountability and transparency in the process
Private Limited CompanyLegalwiz is doing its best to give good service to clients.
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The personal set is needed for every shareholder and director. The last three are about the firm itself.
For every shareholder and director. A foreign national provides a passport instead.
The Aadhaar card, voter ID, passport or driving licence of every shareholder and director.
The telephone bill, electricity bill or latest bank statement of every shareholder and director.
A recent passport size photograph of every shareholder and director.
The electricity or telephone bill for the registered office address.
A no objection certificate has to be obtained from all the secured creditors of the applicant firm.
A copy of the partnership deed and the certificate of registration, verified by at least two partners of the general partnership.
A copy of the latest income tax return filed by the partnership firm.
Step 01
Step 02
Step 03
Subject to government processing time.
Fifteen working days end to end. Everything we control is done by day 10; the last five are the registrar’s.
2 of 15 working days
3 of 15 working days
3 of 15 working days
2 of 15 working days
5 of 15 working days
Subject to government processing time.
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Three things have to be in place for the registration:
A minimum authorised capital of ₹1 lakh has to be provided at registration. The requirement of a minimum paid-up capital was removed as part of the government’s initiative to simplify business registration.
Each shareholder must subscribe to at least one share for the registration, and enough should be introduced to actually run the business.
Anyone over the age of 18, once they have obtained a Director Identification Number. There are no criteria in terms of citizenship or residency, so a foreign national can be a director too.
The DIN allotment application is merged with the application to form the company, subject to a limit of three DINs.
A board meeting has to be held at least once every three months, and an annual general meeting at least once every year.
100% foreign direct investment is allowed in India in many industries under the automatic route. Under it only a post-investment filing with the RBI is necessary, stating the nature of the investment.
A few industries require prior approval from the RBI, and in those the approval has to be obtained before the investment is made.
There is no concept of a common seal in a partnership. A private limited company has one, and it denotes the signature of the company, and every company has its own.
No. Neither capital gains tax nor stamp duty is charged on the transfer of property from a partnership firm to a private limited company.
The accumulated loss and unabsorbed depreciation of the partnership firm are treated as those of the successor company for the year in which the conversion took effect.
That loss can then be carried forward for a further eight years in the hands of the successor company.
Most partnership firms begin as a simple arrangement between founders eager to get up and running quickly, sharing the workload, and avoiding too much bureaucracy.
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Separate the business from the people who own it.
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