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John Miller (Business Strategist)     12 February 2021

How do you advise people who want to convert a partnership?

How do you advise people who want to convert a partnership to a private company using a case law?



Learning

 3 Replies

Nandini Warrier   12 February 2021

Good evening,

Conversion of a partnership to a private company can be found under the provisions of The Companies Act, 1956 and the Income Tax Act, 1961. There are two options available under The Companies Act, 1956 namely- to dissolve the firm and incorporate a new company under the Companies Act, 1956, or incorporate a company which can legally take over the business of the firm and continue the same business under Part IX of the Companies Act, 1956. The firm can be converted following the provisions under IX of the Companies Act 1956, since there are benefits for both the firm and the company. 

The partners must all conduct a meeting in regards to the conversion of the company, and you can obtain a No Objection Certificate from the secured creditors of the firm, if any are present.  An application needs to be filed with the Registrar of Companies (ROC) to obtain the name for the proposed company after conversion, with various attachments stating the fact that the partnership firm is pro­posed to be converted under the Companies Act, 2013.

Read more at: https://www.lawyersclubindia.com/experts/conversion-of-partnership-firm-into-private-limited-company-426176.asp

https://www.lawyersclubindia.com/experts/part-ix-companies-act-1956-81961.asp

https://www.lawyersclubindia.com/articles/requirement-of-transfer-in-case-of-conversion-of-a-firm-into-a-private-limited-company-3745.asp

Hope this helps!

Regards,

Nandini

LegalWizin (Online Legal Service)     13 February 2021

In the current corporate world and market situation it is a wise decision to convert a Partnership firm into Private Limited Company. Because Private company is more advantageous than a Partnership firm on following basis:

  • Liability of owner is limited to subscribed capital
  • Separation of Management and Ownership
  • Hire Managerial Personnel without affecting ownership
  • Higher credibility allows ease of raising fund
  • No minimum paid-up capital required for company registration
  • No Stamp duty on conversion
  • No capital gain tax
  • Carry Forward and Set off Losses and Unabsorbed Depreciation

There are some conditions to be fulfilled before converting the firm into a company such as

  • Approval of majority of Partners of the firm
  • There must be minimum 7 Partners in a firm
  • There must be minimum 2 Directors and 7 shareholders
  • There must be minimum Authorized capital of INR 1 Lakh
  • Shares must be divided among the partners as per their capital in the firm on the date of conversion.

After fulfilling all such requirement the professional may proceed for all the legal formalities and file the necessary forms required with MCA.

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