Many entrepreneurs in India start a company with the simplest partnership company. Two or more people pool their capital, skills, and resources to launch a partnership model venture. But as the business expands, the legal structure must be more structured and stronger. This is where the partnership firm conversion to private limited company procedure becomes essential to know.
Conversion from partnership firm to private limited company offers limited liability, quicker access to funds, permanent succession and credibility. In this blog, we deal with the Pvt Ltd conversion process from partnership, its legal problems and procedure of shifting partnership firm to private limited company in India.
Benefits Associated with Conversion to a Private Limited Company
Benefits of partnership firm conversion to private limited company are:
1. Limited Liability:
The best benefit to the shareholders associated with a private limited company will be the limited liability. Unlike a partnership firm where partners personally assume all business liabilities and obligations, the only responsibility a shareholder has is what they own.
2. Perpetual Succession:
A private limited company is legally separate from its members. This means the company remains around despite changes in its management or ownership.
3. Access to Capital:
Private limited companies have access to capital better compared to partnership firms. They might raise money through shares, debentures or perhaps through loans from banks to fund expansion and growth.
4. More Credibility:
The legal structure and compliance needs associated with a private limited company might make it much more credible to investors, lenders along with other stakeholders who might want to conduct business with it.
Legal Requirements for Partnership to Pvt Ltd Conversion
Legal documentation and requirements for the partnership to Pvt Ltd conversion process must be understood before proceeding with the partnership to Pvt Ltd conversion procedure. Essential documents to complete a Partnership to Pvt Ltd conversion checklist are:
- Partnership Deed: A copy of the existing partnership deed.
- NOC: An NOC from all partners allowing the conversion to a private limited company.
- Valuation Report: A report of the chartered accountant or registered valuer on the partnership firm’s assets and liabilities.
- Incorporation Documents: Drafts of the Memorandum and Articles of Assn. and other incorporation papers.
- Identity & Address Proof: Identification and address proof of all proposed directors and shareholders of the private limited company.
- Statutory Registrations: Existing statutory registrations like PAN, Tan, GST along with other licenses/approvals held by the partnership firm.
The Conversion Process from Partnership to Private Limited Company
The steps in the Private limited company formation from partnership consist of:
- Name Reservation: Step one is registering the proposed private limited company title with the Registrar of Companies.
- Drafting of Documents: Following name approval, the MoA, AoA and various other incorporation papers are drawn up according to the Companies Act, 2013 along with other regulations.
- Valuation & Stamp Duty: A valuation of the partnership firm’s assets and liabilities is necessary and the appropriate stamp duty paid on that valuation.
- Filing of Documents: They must be filed with the RoC along with the associated fees and forms after being drafted and stamped the incorporation documents.
- Issue of Certificate of Incorporation: When filed and examined correctly, the RoC is going to issue a Certificate of Incorporation that changes the partnership company into a private limited company.
- Post-Incorporation Compliances: The new private limited company must register important documents like PAN, Tan, GST along with other licenses/approvals for its business operation after incorporation.
Legal Considerations for Partnership to Pvt Ltd Conversion
Throughout the Pvt Ltd conversion process from partnership, compliance with relevant laws & regulations are needed. Main legal considerations include:
- Tax Implications: The conversion process might involve tax implications including capital gains tax, stamp duty along with other taxes. Get guidance from a chartered accountant or tax consultant like StartupFino to avoid needless tax liability.
- Employment & Labor Laws: In case the partnership firm employs workers, their employment agreements and benefits have to be transferred to the brand new private limited company under appropriate labor laws and regulations.
- Contracts & Agreements: Existing contracts, arrangements and intellectual property rights belonging to the partnership firm have to be given or transferred to the new private limited company.
- Regulatory Compliances: The new private limited company might need industry specific licenses, approvals or registrations by relevant regulatory authorities based on the nature of the company.
- Corporate Governance: Being a private limited company, the new entity has to perform business governance tasks like board meetings, keeping statutory registers and filing annual returns to the RoC.
Final Thoughts
Conversion of Partnership Firm into Private Limited Company can be a complicated legal and regulatory procedure. Seek the assistance of experienced lawyers and chartered accountants from StartupFino to make the transition. They can assist you with the legal stuff, reduce risks & make the most of the conversion advantages.
Conversion from partnership firm to private limited company might be a good move for growing companies in India as it gives less liability, access to capital and credibility. Knowing the legal requirements, following the prescribed technique and seeking professional guidance can help entrepreneurs think of this transition correctly and seize new growth opportunities.
FAQs
1. What are the key steps in changing a partnership firm to a private limited company?
The key steps in changing a partnership firm to a private limited company are:
a. Name Reservation: Reserve a name for the proposed private limited company with the Registrar of Companies.
b. Drafting of Documents: Draft the MoA, Articles of Association along with other incorporation documents as per Companies Act, 2013.
c. Valuation & Stamp Duty: Do an analysis of the partnership company’s liabilities and assets and impose the appropriate stamp duty on the valuation.
d. Filing of Documents: File the incorporation papers along with associated forms and fees with the RoC.
e. Certificate of Incorporation: Get the Certificate of Incorporation from the RoC indicating the official conversion.
f. Post-Incorporation Compliances: Get needed registrations like PAN, Tan, GST along with other licenses/approvals for business.
2. What legal formalities and documentation are associated with the conversion of Partnership to private limited company?
Legal formalities and documentation for the conversion include:
a. Partnership Deed: Copies of the existing partnership deed.
b. NOC: An NOC from all partners consenting to the conversion.
c. Valuation Report: A report by a registered accountant or registered valuer describing the valuation of the partnership firm’s assets and liabilities.
3. How does StartupFino help with a conversion from partnership to private limited?
StartupFino can help you convert a partnership to a private limited in the following ways:
a. Expert Guidance: StartupFino can offer legal counsel, chartered accountants and company secretaries during the conversion process.
b. Documentation Assistance: We can help draft and file all the documents required including the MoA, AoA and incorporation forms.
c. Valuation & Stamp Duty: StartupFino can conduct the valuation and assist with the stamp duty calculation and payment
d. Online Platform: Our intuitive online website enables clients to track their conversion progress and access main documents and updates.
Partnering with StartupFino means getting expert advice, simplified procedures in addition to thorough assistance to transform a partnership firm to a private limited company.
