CONVERSION
This query is : Resolved
09 January 2011
step by step procedure(guidelines) for converting partnership firm into private company. Also tell the benefits of such conversion.
09 January 2011
Conversion of Firm under Part IX of the Companies Act, 1956 :- The firm may be converted into a company by following the provisions of Part IX of the Companies Act, 1956. Sections 565 to 581 deal with conversion of firms into a company under the Companies Act, 1956.
For the purpose of Part IX so far as it relates to the registration of companies limited by shares, a joint stock company means a company having a permanent paid up or nominal share capital of fixed amount divided into shares, also of fixed amount, or held and transferable as stock, or divided and held partly in the one way and partly in the other, and formed on the principle of having for its members the holders of those shares or that stock, and no other persons. Such a company, when registered with limited liability under the Companies Act, 1956 shall be deemed to be a company limited by shares.
A company cannot be registered under part IX unless the 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 is obtained.
Since the liability of the members of the firm is unlimited, when a firm desires to register itself as a company under Part IX 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.
Steps for incorporation of company under part IX
Step 1
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 Part IX of the Companies Act, 1956. Since the liability of the members of the firm is unlimited, when a firm desires to register itself as a company under Part IX 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;
There must be a fixed capital divided into units ;
There must be provision of converting a firm into company.
There must be an 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.
Step 2
APPLICATION FOR DIRECTOR’S IDENTIFICATION NUMBER AND DIGITAL SIGNATURERS CERTIFICATE
Ministry of Company Affairs has made Director’s Identification Number mandatory for each Director. Following details are required for DIN: Name(s) , Father’s Name(s), Permanent Residential Address(s), Present Residential Address(s), Occupation, Name of the Companies in which the promoter is Director/Promoter, Date of Birth , E-mail IDs (Minimum 2 for private company).
Ministry of Company affairs have initiated the process of E-filing of the Documents, wherein the either of the Director needs to have Digital Signature Certificate. For the matter of Convenience in submission of documents with Registrar of Companies and expediting the processing, it is advisable to obtain the Digital Signature Certificate from prescribed authorities.
Following documents are required for DIN/Digital Signature: Copy of Passport/ Voter ID/Ration Card/Driving License/ PAN Card/Telephone Bill/Electricity Bill/Bank Statement.
The application is required to be signed by the promoter(s).
Normally the process takes 5 to 7 working days after submitting the documents with DIN Cell.
Note: In case of a Private Limited Company at least two Directors should be appointed.
Step 3
NAME APPROVAL
An application in Form No. 1A 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 part IX of the Companies Act. (Annexure 1).
Certified true copy of Partnership Deed .
Certified true copy of the latest balance sheet of the partnership.
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 .
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.
The details to be state in the said application are as follows :
1. Maximum Six alternative names for the proposed company. (in order of preference)
2. Names , Father’s/ Husband’s Name, Permanent Residential Addresses, Present Residential Address, Occupation, Name of the Companies in which the Promoter is Director/Promoter , Date of Birth , DIN of the Promoters.
3. Authorised Capital of the proposed Company.
4. Main objects of the proposed company.
5. State of Registered Office of Company
6. Copy of Trade Mark Application/Certificate If name of proposed company based on a Trade Mark,
Note:
As per Indian Companies Act, 1956, a Private Company should have a minimum Paid up Capital of Rupees One Lac.
As per Indian Companies Act, 1956 there should be at least two promoters in a Private Limited Company.
The Registrar of Companies will ordinarily inform within a period of seven days from the date of submission of the application whether any of the names applied for is available.
If the name is not made available, the Registrar of Companies may reject the application and if it happens, new names to be provided for approval.
Step 4
Registration of Company
On obtaining the approval of name , file the following documents with the registrar of Companies within 60 days from the date of name approval
Two sets of Memorandum and Articles of Association of the Company. One set shall be duly stamped. A memorandum of association and articles of association may be made for the company which will be similar in all respects to a normal Memorandum and Articles of Association except that it incorporate therein terms of settlement deed.
After drafting The Memorandum and Articles of Association is required to be stamped as per the Indian Stamp Act. (in Delhi its Rs. 200/- on MOA & 0.15% of Authorized Capital on AOA).
Thereafter these documents are required to be executed by the promoters in their own hand in the presence of professionals after the date of Stamping of Memorandum & Article of Association in duplicate stating their full name, father’s name, residential address, occupation, number of shares subscribed for & Signature etc.
However, if any director is foreigner and not present in India after the date of Stamping of the Memorandum & Article of Association, in that case, his signature should be attested in Indian Embassy located in his home country.
Form No. 1 – This is a declaration to be executed on a non-judicial stamp paper by one of the directors of the proposed company or other specified persons such as Chartered Accountants, Company Secretaries, Advocates, etc. stating that all the requirements of the incorporation have been complied with. (Annexure 2)
Form No. 18 – This is a form to be filed by one of the directors of the company informing the ROC the registered office of the proposed company. (Annexure 3).
Form No.: 32 – This is a form stating the fact of appointment of the proposed directors on the board of directors from the date of incorporation of the proposed company and is signed by one of the proposed directors. (Annexure 4).
Power of Attorney signed by all the subscribers of MOA authorizing one of the subscribers or any other person to act on their behalf for the purpose of incorporation and accepting the certificate of incorporation.
Form No. 37 along with Form No. 39 (Annexure 5 & 6).
Declaration by two partners verifying the particulars set forth in the above mentioned documents.
Consent letters from Directors
Filing fees as may be applicable
Other information to be submitted:
i) A list showing the names, addresses and occupations of all persons who on a day named in the list, not being more than 6 clear days before the date of registration were members of the company, with the addition of the shares or stock held by them respectively, distinguishing, in cases where the shares are numbered, each share by its number.
ii) If the company is intended to be registered as a limited company, a statement specifying the following particulars :-
a) the nominal share capital of the company and the number of shares into which it is divided or the amount of stock of which it consists
b) the number of shares taken and the amount paid of each share
c) the name of the company, with the addition of the word “Limited” or “Private Limited” as the case may be, as the last word / words, in case the company is being registered with limited liability.
Step 5
On completion of the formalities, the registrar shall register the Company under Part IX of the Act and issue a certificate of incorporation.
Steps for Incorporation of a public limited company
First Five stages are almost same for incorporation of a public limited company except there should be at least seven subscribers, three directors and the minimum paid up capital are Rs. 5 lacs.
After completion of first three stages a private limited company may commence its business but a public limited company is required to obtain certificate for commencement of business from Registrar of Companies. For obtaining the Certificate for commencement of its business, the Company is required to submit following documents with Registrar of Companies:
Form 20 to be executed on a non-judicial stamp paper (Annexure 5)
Statement in lieu of Prospectus
Affidavit from each directors stating that the Company has not commenced its Business
Details of Preliminary expenses
Board Resolution for approval of preliminary expenses.
Board resolution for appointment of first Auditors
Consent letter from the Auditors for acting as there Statutory Auditors.
Registrar of Companies thereafter shall process the documents and if all the documents are in order then it will issue a Certificate for commencement of Business.
Steps after incorporation of private company
Once the new company is formed, the takeover agreement would be entered between the Partnership Firm and the newly incorporated company.
Convene a Board Meeting after giving notice to all the directors of the newly incorporated company immediately after incorporation as per section 286 of the Companies Act, 1956 to adopt the agreement entered into by the company and the partner of the firm for the acquisition of business of the firm.
In such a situation, the entire business of the firm along with all its assets and liabilities is transferred to the company.
The company may issue shares or other securities to the Partner of the firm.
Steps after incorporation of public company
Once the new company is formed, the takeover agreement would be entered between the Partnership firm and the newly incorporated company.
Convene a Board Meeting after giving notice to all the directors of the newly incorporated company immediately after incorporation as per section 286 of the Companies Act, 1956 to adopt the agreement entered into by the company.
In the above Board Meeting also fix up the date, time , place and agenda for calling a General Meeting to pass a Special Resolution under section 81(1A) of the Companies Act, 1956 giving powers to the Board of Directors to issue and allot equity shares to Partners of the firm.
Effect of Registration under part IX
Vesting of Property : All property, movable as well as immovable belonging to or vested in the firm at the time of registration shall, on such registration pass to and vest in the company as incorporated under Part IX.
The Registration of a company under Part IX shall not in any manner affect its rights or liabilities in respect of any debt or obligation incurred or any contract entered into, by, to, with or on behalf of the firm before registration.
All suits and other legal proceedings taken by or against the company or any public officer or member thereof which where pending at the time of registration may be continued in the same manner as if registration had not taken place. However, no execution can be done against the property or person of any individual member of the company on any decree or order obtained in such suit or proceeding. If the property of the company is inadequate to satisfy the decree or order, an order for winding up the company may be obtained.
All provisions of any Indian law or other instrument constituting or regulating the company shall apply to the registered company in the same manner as if the company had been formed under the Companies Act, 1956 and those conditions were required to be contained and were contained in its Memorandum and Articles of Association.
As per section 383A of the Companies Act, if the paid up capital of the Company is Rs. 500 lacs or more than the company is required to appoint a full time Company Secretary.
As per section 269 of the Companies Act, 1956 if the paid up capital of the company is Rs. 500 Lacs or more than the Company is required to appoint either Managing Director or Whole Time Director or Manager.
Debts and liabilities are not automatically transferred to the new company and therefore a novation agreement will have to be entered into by the company with its debtors and creditors.
Obtain an indemnity from the company to the partnership firm for all acts, deeds and things done after the registration under Part IX and vice versa.
Comply with all the relevant provisions of the Companies Act, 1956 i.e. call requisite meetings, register charges, comply with section 58A if necessary, etc.
Stamp duty. Conversion of firm to company is exempted from payment of stamp duty as there is no change in the ownership and no transfer is involved.
For the purpose of Part IX so far as it relates to the registration of companies limited by shares, a joint stock company means a company having a permanent paid up or nominal share capital of fixed amount divided into shares, also of fixed amount, or held and transferable as stock, or divided and held partly in the one way and partly in the other, and formed on the principle of having for its members the holders of those shares or that stock, and no other persons. Such a company, when registered with limited liability under the Companies Act, 1956 shall be deemed to be a company limited by shares.
A company cannot be registered under part IX unless the 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 is obtained.
Since the liability of the members of the firm is unlimited, when a firm desires to register itself as a company under Part IX 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.
Steps for incorporation of company under part IX
Step 1
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 Part IX of the Companies Act, 1956. Since the liability of the members of the firm is unlimited, when a firm desires to register itself as a company under Part IX 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;
There must be a fixed capital divided into units ;
There must be provision of converting a firm into company.
There must be an 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.
Step 2
APPLICATION FOR DIRECTOR’S IDENTIFICATION NUMBER AND DIGITAL SIGNATURERS CERTIFICATE
Ministry of Company Affairs has made Director’s Identification Number mandatory for each Director. Following details are required for DIN: Name(s) , Father’s Name(s), Permanent Residential Address(s), Present Residential Address(s), Occupation, Name of the Companies in which the promoter is Director/Promoter, Date of Birth , E-mail IDs (Minimum 2 for private company).
Ministry of Company affairs have initiated the process of E-filing of the Documents, wherein the either of the Director needs to have Digital Signature Certificate. For the matter of Convenience in submission of documents with Registrar of Companies and expediting the processing, it is advisable to obtain the Digital Signature Certificate from prescribed authorities.
Following documents are required for DIN/Digital Signature: Copy of Passport/ Voter ID/Ration Card/Driving License/ PAN Card/Telephone Bill/Electricity Bill/Bank Statement.
The application is required to be signed by the promoter(s).
Normally the process takes 5 to 7 working days after submitting the documents with DIN Cell.
Note: In case of a Private Limited Company at least two Directors should be appointed.
Step 3
NAME APPROVAL
An application in Form No. 1A 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 part IX of the Companies Act. (Annexure 1).
Certified true copy of Partnership Deed .
Certified true copy of the latest balance sheet of the partnership.
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 .
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.
The details to be state in the said application are as follows :
1. Maximum Six alternative names for the proposed company. (in order of preference)
2. Names , Father’s/ Husband’s Name, Permanent Residential Addresses, Present Residential Address, Occupation, Name of the Companies in which the Promoter is Director/Promoter , Date of Birth , DIN of the Promoters.
3. Authorised Capital of the proposed Company.
4. Main objects of the proposed company.
5. State of Registered Office of Company
6. Copy of Trade Mark Application/Certificate If name of proposed company based on a Trade Mark,
Note:
As per Indian Companies Act, 1956, a Private Company should have a minimum Paid up Capital of Rupees One Lac.
As per Indian Companies Act, 1956 there should be at least two promoters in a Private Limited Company.
The Registrar of Companies will ordinarily inform within a period of seven days from the date of submission of the application whether any of the names applied for is available.
If the name is not made available, the Registrar of Companies may reject the application and if it happens, new names to be provided for approval.
Step 4
Registration of Company
On obtaining the approval of name , file the following documents with the registrar of Companies within 60 days from the date of name approval
Two sets of Memorandum and Articles of Association of the Company. One set shall be duly stamped. A memorandum of association and articles of association may be made for the company which will be similar in all respects to a normal Memorandum and Articles of Association except that it incorporate therein terms of settlement deed.
After drafting The Memorandum and Articles of Association is required to be stamped as per the Indian Stamp Act. (in Delhi its Rs. 200/- on MOA & 0.15% of Authorized Capital on AOA).
Thereafter these documents are required to be executed by the promoters in their own hand in the presence of professionals after the date of Stamping of Memorandum & Article of Association in duplicate stating their full name, father’s name, residential address, occupation, number of shares subscribed for & Signature etc.
However, if any director is foreigner and not present in India after the date of Stamping of the Memorandum & Article of Association, in that case, his signature should be attested in Indian Embassy located in his home country.
Form No. 1 – This is a declaration to be executed on a non-judicial stamp paper by one of the directors of the proposed company or other specified persons such as Chartered Accountants, Company Secretaries, Advocates, etc. stating that all the requirements of the incorporation have been complied with. (Annexure 2)
Form No. 18 – This is a form to be filed by one of the directors of the company informing the ROC the registered office of the proposed company. (Annexure 3).
Form No.: 32 – This is a form stating the fact of appointment of the proposed directors on the board of directors from the date of incorporation of the proposed company and is signed by one of the proposed directors. (Annexure 4).
Power of Attorney signed by all the subscribers of MOA authorizing one of the subscribers or any other person to act on their behalf for the purpose of incorporation and accepting the certificate of incorporation.
Form No. 37 along with Form No. 39 (Annexure 5 & 6).
Declaration by two partners verifying the particulars set forth in the above mentioned documents.
Consent letters from Directors
Filing fees as may be applicable
Other information to be submitted:
i) A list showing the names, addresses and occupations of all persons who on a day named in the list, not being more than 6 clear days before the date of registration were members of the company, with the addition of the shares or stock held by them respectively, distinguishing, in cases where the shares are numbered, each share by its number.
ii) If the company is intended to be registered as a limited company, a statement specifying the following particulars :-
a) the nominal share capital of the company and the number of shares into which it is divided or the amount of stock of which it consists
b) the number of shares taken and the amount paid of each share
c) the name of the company, with the addition of the word “Limited” or “Private Limited” as the case may be, as the last word / words, in case the company is being registered with limited liability.
Step 5
On completion of the formalities, the registrar shall register the Company under Part IX of the Act and issue a certificate of incorporation.
Steps for Incorporation of a public limited company
First Five stages are almost same for incorporation of a public limited company except there should be at least seven subscribers, three directors and the minimum paid up capital are Rs. 5 lacs.
After completion of first three stages a private limited company may commence its business but a public limited company is required to obtain certificate for commencement of business from Registrar of Companies. For obtaining the Certificate for commencement of its business, the Company is required to submit following documents with Registrar of Companies:
Form 20 to be executed on a non-judicial stamp paper (Annexure 5)
Statement in lieu of Prospectus
Affidavit from each directors stating that the Company has not commenced its Business
Details of Preliminary expenses
Board Resolution for approval of preliminary expenses.
Board resolution for appointment of first Auditors
Consent letter from the Auditors for acting as there Statutory Auditors.
Registrar of Companies thereafter shall process the documents and if all the documents are in order then it will issue a Certificate for commencement of Business.
Steps after incorporation of private company
Once the new company is formed, the takeover agreement would be entered between the Partnership Firm and the newly incorporated company.
Convene a Board Meeting after giving notice to all the directors of the newly incorporated company immediately after incorporation as per section 286 of the Companies Act, 1956 to adopt the agreement entered into by the company and the partner of the firm for the acquisition of business of the firm.
In such a situation, the entire business of the firm along with all its assets and liabilities is transferred to the company.
The company may issue shares or other securities to the Partner of the firm.
Steps after incorporation of public company
Once the new company is formed, the takeover agreement would be entered between the Partnership firm and the newly incorporated company.
Convene a Board Meeting after giving notice to all the directors of the newly incorporated company immediately after incorporation as per section 286 of the Companies Act, 1956 to adopt the agreement entered into by the company.
In the above Board Meeting also fix up the date, time , place and agenda for calling a General Meeting to pass a Special Resolution under section 81(1A) of the Companies Act, 1956 giving powers to the Board of Directors to issue and allot equity shares to Partners of the firm.
Effect of Registration under part IX
Vesting of Property : All property, movable as well as immovable belonging to or vested in the firm at the time of registration shall, on such registration pass to and vest in the company as incorporated under Part IX.
The Registration of a company under Part IX shall not in any manner affect its rights or liabilities in respect of any debt or obligation incurred or any contract entered into, by, to, with or on behalf of the firm before registration.
All suits and other legal proceedings taken by or against the company or any public officer or member thereof which where pending at the time of registration may be continued in the same manner as if registration had not taken place. However, no execution can be done against the property or person of any individual member of the company on any decree or order obtained in such suit or proceeding. If the property of the company is inadequate to satisfy the decree or order, an order for winding up the company may be obtained.
All provisions of any Indian law or other instrument constituting or regulating the company shall apply to the registered company in the same manner as if the company had been formed under the Companies Act, 1956 and those conditions were required to be contained and were contained in its Memorandum and Articles of Association.
As per section 383A of the Companies Act, if the paid up capital of the Company is Rs. 500 lacs or more than the company is required to appoint a full time Company Secretary.
As per section 269 of the Companies Act, 1956 if the paid up capital of the company is Rs. 500 Lacs or more than the Company is required to appoint either Managing Director or Whole Time Director or Manager.
Debts and liabilities are not automatically transferred to the new company and therefore a novation agreement will have to be entered into by the company with its debtors and creditors.
Obtain an indemnity from the company to the partnership firm for all acts, deeds and things done after the registration under Part IX and vice versa.
Comply with all the relevant provisions of the Companies Act, 1956 i.e. call requisite meetings, register charges, comply with section 58A if necessary, etc.
Stamp duty. Conversion of firm to company is exempted from payment of stamp duty as there is no change in the ownership and no transfer is involved.
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