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Convert Partnership to Private Limited Company

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Conversion of Partnership firm into Private limited co.

The major benefit of registering a private limited company is that it gives a status of a separate legal entity which a partnership firm does not have. In case of a partnership, a partner ’s personal assets are attached and they would be held personally responsible for each and every debt or liability that the business incurs. Hence, with the expansion of business, if partners want to increase its credibility and put limited liability on its members, it is more favorable 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.

Requirements of Conversion of Partnership firm into Private limited co.

  • Registered Partnership firm with minimum 7 Partners
  • Minimum Share Capital shall be Rs. 100,000 (INR One Lac) for conversion into a Private Limited Company
  • Minimum Share Capital shall be Rs. 500,000 (INR five Lac) for conversion into a Public Limited Co.
  • If the above requirement is not fulfilled by the firm, then the Partnership deed should be altered
  • Minimum 7 Shareholders
  • Minimum 2 Directors (for Private Limited Co.) and 3 Directors (for Public Limited Co.)
  • The directors and shareholders can be same person
  • DIN (Director Identification Number) for all the Directors
  • DSC (Digital Signature Certificate) for two of the Directors

Conversion of Partnership firm into Private limited co. Online Process

Documents Required For Conversion of Partnership firm into Private limited co.

Benefits of conversion from partnership to a private limited company

A.  Limited Liability of Owners

The liability of members/directors is limited to an extent of capital contribution agreed by the members of the company. The loss or debt of a company cannot be assigned to members even at liquidation. Further, one member is not held responsible for the actions of negligence or misconduct of any other member.

B.    Separate legal entity

A partnership is not a separate legal entity. If one of the partners dies or retires, or has to leave the firm, the partnership ceases to exist and so a new partnership has to be formed. But this is not the case of a private limited company. The private limited company is a separate legal entity hence it also provides the capacity to sue third parties.

C.   Separation of Management and Ownership

The separate ownership and management help both to focus on their potential works. The shareholders assign responsibility to directors for operating and running the company without losing control in form of voting.

D. Raising Capital

Raising Capital is easier in the Pvt. Ltd. Company as it allows the members to participate without taking on any personal accountability; unlike the general partnership where all common partners have unrestrained liability. The organization itself provides a number of ways to raise funds in the form of private equity, ESOP, and more.

FAQ

For Private Company registration, the following requirements must be fulfilled:

1. Minimum 2 directors shall be appointed, out of which one must be a resident of India.
2. Minimum 2 shareholders are required for this registration. Here, an individual may become shareholder and director at the same time.
3. A place of business in India must be provided as a registered office address

While registration, minimum authorized capital of  ₹1 Lakh should be provided. The requirement of minimum paid-up capital is eliminated as a part of Government’s initiative to simplify business registration in India. However, each shareholder must subscribe at least 1 share for the registration and amount sufficient to run a business should be introduced.

Any person above the age of 18 years can become a director in the company after procuring Director Identification Number (DIN). As there are no criteria provided in terms of citizenship or residency, a foreign national can also become a director. The application of DIN Allotment is now merged with the application for the formation of a company subject to a limit of maximum 3 DIN.

There is no concept of a common seal in partnership. But a private limited company has a common seal which denotes the signature of the company and every company shall have its own common seal.

No Capital Gains tax or stamp duty shall be charged on transfer of property from Partnership firm to a Private Limited Company.

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RS. 19999
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