PROCEDURES FOR CONVERSION OF PARTNERSHIP FIRM TO PRIVATE COMPANY
HOLD A MEETING OF THE PARTNERS TO TRANSACT THE FOLLOWING BUSINESS
- Assent of majority of its members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose of registering the firm under the Companies Act, 2013.
- 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 majority required to assent as aforesaid shall consist of not less than ¾ of the members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose.
- To authorize one or more partners to take all steps necessary and to execute all papers, deeds, documents etc. pursuant to registration of the firm as a Company.
- To execute a supplementary Partnership Deed to align it with the requirements as under:
- THERE MUST BE AT LEAST 7 PARTNERS IN THE PARTNERSHIP FIRM;
- The firm may be registered with the Registrar of Firms;
- This must be a fixed capital divided into units ;
- Provision of converting a firm into company.
- Agreement by the partners to convert the partnership to a company. This can be done by a contract in writing to this effect to which the partner’s resolution for conversion can be attached as annexure.
- Execute a settlement deed.
(If the above requirement is not fulfilled by the firm, then the Partnership deed should be altered)
APPLICATION FOR DIRECTOR’S IDENTIFICATION NUMBER AND DIGITAL SIGNATURERS CERTIFICATE
- An application in Form needs to be filed with the Registrar of Companies (ROC) with following annexure(s) stating the fact that the partnership firm proposed to be converted under the Companies Act. (Annexure 1).
- Certified true copy of Partnership Deed.
- A certified true copy of the latest balance sheet of the partnership.
- In Certified true copy of the latest income tax assessment order/return.
- Consent of all the partners stating that they have agreed to register the partnership firm as a Company.
- By Certified True Copy of the resolution passed by the firm in this regard.
- The application is required to be digitally signed by one of the promoters.
Other steps in Conversion of a Partnership firm into a Company are similar to steps involved in formation of an Indian Private Limited Company (Except processing of few additional forms.
All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the company.
No Stamp Duty
All movable and immovable properties of the firm automatically vest in the Company. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.
No Capital Gain Tax
No Capital Gains tax shall be charged on transfer of property from Partnership firm to Company.
Continuation of Brand Value
The goodwill of the Partnership firm and its brand value is kept intact and continues to enjoy the previous success story with a better legal recognition.
Carry forward and Set off Losses and Unabsorbed Depreciation
The accumulated loss and unabsorbed depreciation of Partnership firm is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company.
KEY CONDITIONS TO GET SUCH BENEFITS:
- All partners of the partnership firm shall become shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the conversion.
- The partners receive consideration only by way of allotment of shares in company and the partners shareholding in the company in aggregate is 50% or more of its total voting power and continue to be as such for 5 years from the date of conversion.
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