Conversion of Partnership Firm into Private Limited Company


Conversion of Partnership Firm into Private Limited Company

Conversion of a Partnership firm into Private Limited Company requires complying with the requirements of Part IX of the Companies Act. Generally registration of partnership firm is not mandatory but the process of conversion becomes very difficult if the firm is not registered.
Pre conditions to be fulfilled

Some basic requirements that should be complied with before the procedure of registration begin:

  • Minimum Seven Partners required;
  • Minimum Share Capital shall be Rs.100000;
  • Firms’ paid up capital or authorized capital is to be divided into shares;
  • Profit sharing ratio should be on the basis of capital employed by partners;
  • The object clause of memorandum (to be drafted) should permit the new company to acquire the business and the assets and liabilities of the partnership firm.

Steps for incorporation

1) Ensure that the firm is registered with the Registrar of Firms.
2) A meeting of the partners is to be held and assent of majority of the partners is required for purposes which includes deciding the name of the proposed company, to authorize at least one of the partners to register all the documents with the registrar of companies, to prepare a supplementary partnership deed which should include the basic contents of object clause of Memorandum of Association.
3) Memorandum of Association and Articles of Association is to be drafted. The memorandum (to be drafted) should permit the  new company to acquire the business and the assets and liabilities of the partnership firm.
4) Application of name approval should be obtained by filling Form 1A with the following documents:

  • Certified true copy of the partnership deed, latest balance sheet
  • Consent of all the partners for the conversion
  • Certified true Copy of the resolution passed by the firm in this regard.

5) After getting the name approved, Form 18 and Form 32 is to be filed with the registrar along with two sets of Memorandum and Articles of Association of the Company.

6) Thereafter Form 1 along with Form 37 (Registration of Partnership Deed) & 39 (Registration of Existing as a limited company) is to be filed.

7) All the partners and other persons intending to become director should apply for DIN (Director Identification Number).

8) At least one directors should have DSC (Digital Signature Certificate)

9) Declaration by two partners that the documents submitted has been verified.

10) Filling Fees.

On completion of the formalities and upon the satisfaction of the registrar, the Certificate of Incorporation will be issued by the registrar.

2 Comments

  • Vibhuti sharma (#)
    July 14th, 2016

    If there is a partner’s loan appearing as a liability in the balance sheet, in the end when will it be paid off? We have done it in theory that after the payment of outsiders’ Liabilities, and before the capital adjusment. But is it paid in the capital account itself? Or it is not? And what will be the journal entry for this?

    • ca.aryendra (#)
      July 14th, 2016

      Dear Vibhuti,
      1. “All partners of the partnership firm shall become shareholders of the company in the same proportion in which their capital accounts stood in the firm on the date of the conversion.”
      3. “The partners receive consideration by way of allotment of shares only and continue to be as such for 5 years from the date of conversion.”
      4. “All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the company.”
      Your Answer:
      You may transfer in capital account before conversion:
      Partners A/c Dr
      To Partne’s Capital a/c Cr
      (Being loan of partner transfer in capital account)
      Or
      You can treat as loan as mentioned point no 3 ” company can accept loan from shareholders” you pay later after conversion as per your convenient.

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