Conversion of a partnership firm into a private limited company
A partnership firm converts into a private limited company by registering under section 366 of the Companies Act, 2013. Company Suggestion takes the partners’ assent, publishes the notice and files URC-1.
How does a partnership firm become a company?
Part I of Chapter XXI applies to a partnership firm as well as to an LLP. The firm is registered as a company. It is not wound up and replaced by an unrelated company.
The firm needs two or more partners at the time of conversion. The company limits each shareholder’s liability to the unpaid amount on that shareholder’s shares. Partners of a firm are personally liable for the firm’s debts.
The company can issue shares. A partnership firm cannot.
Who should convert a partnership firm?
Two plans fit this conversion:
- Partners who want limited liability and a share capital.
- A firm that will bring in an investor as a shareholder.
Partners who want limited liability but will not issue shares can convert the firm into an LLP instead.
Which documents does the conversion need?
URC-1 is filed with seven attachments.
- The partnership deed, and any revised deed if the firm is registered
- A list of the proposed members and the shares each will take
- A list of the first directors, with a section 164 affidavit from each
- A chartered accountant’s statement of assets and liabilities
- The latest income-tax return of the firm
- Written consent from every secured creditor
- An affidavit that the firm will be dissolved with the Registrar of Firms after the company is registered
What are the conversion steps?
Company Suggestion files the conversion in five steps.
- The partners meet. A majority assents, and two or more partners are authorised to sign.
- Every secured creditor gives a written no-objection.
- SPICe+ reserves the name. “Private Limited” is added to the firm’s name when that name is free.
- Form URC-2 is published in English and in the local language. Objectors have 21 clear days.
- URC-1, the memorandum and the articles are filed. The Registrar issues the certificate of incorporation.
Frequently asked questions
4 questions cover the rules that decide this registration.
Can a partnership firm convert into a private limited company?
Yes. A firm with two or more partners can register as a company under section 366 of the Companies Act, 2013. The form is URC-1.
Do all partners have to agree?
A majority of the partners must assent. Every secured creditor must give a written no-objection.
What happens to the firm after the certificate?
The partners file the papers for dissolution of the firm with the Registrar of Firms. The business continues in the company.
Is there a minimum capital?
No. The Companies Act, 2013 sets no minimum paid-up capital for a private limited company. The company still needs at least two shareholders and two directors.