conversion of partnership firm into a pvt ltd company

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Alpa Doshi (Querist)
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02 November 2007 Hello,

Thanks for the reply. Can you please guide me through the procedure/ provisions of Chapter IX of companies Act 1956 whereby a partnership firm can be directly converted into a private limited company?

Thanks,

Alpa Doshi.

Hello,

I have a client which is a partnership firm. Now, they want the firm to be converted into a private limited company. This private limited company will take over the existing business of the pertnership firm and continue with the same setup.

Kindly guide me the procedure by which the exisitng partnership firm can be converted into the private limited company.

Thanking you in advance.

Regards,

Alpa Doshi.

Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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02 November 2007 1. Float a new company
2. Take over the business of existing firm as a going concern with all its assets and liabilities .......a take over deed will be required

However , if there are capital gains issues , particularly when the firm has land and building or other assets at low book value ..........you have to follow the terms and conditions as per income tax act .......to avoid capital gains .

Section 47(xiii)

Transactions not regarded as transfer.

47. Nothing contained in section 45 shall apply to the following transfers ::

any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of 29[demutualisation or] corporatisation of a recognised stock exchange in India as a result of which an association of persons or body of individuals is succeeded by such company :]

Provided that—

(a) all the assets and liabilities of the firm 30[or of the association of persons or body of individuals] relating to the business immediately before the succession become the assets and liabilities of the company;

(b) all the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the succession;

(c) the partners of the firm do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company; and

(d) the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession;

[(e) the [demutualisation or] corporatisation of a recognised stock exchange in India is carried out in accordance with a scheme for 32[demutualisation or] corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);]

kumar arumugam

kumar arumugam (Expert)
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06 November 2007 thanks Sir

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Alpa Doshi

Alpa Doshi (Querist)
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13 November 2007 Please guide to through the provisions of Chapter IX of Companies Act 1956 for converting the partnership firm directly into a private limited company.

Thanks,

Alpa Doshi.

Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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07 December 2007 REGISTRATION OF A JOINT STOCK COMPANY
UNDER PART IX*
8.1 Background note
Part IX of the Companies Act, 1956 permits companies, associations, societies
or partnership firms constituted in pursuance of any other law in force in India
to register themselves as companies and avail the facilities under the Act.
8.2 Eligibility to get registration
The following companies are eligible to register under the Companies Act, 1956
as an unlimited company or as a company limited by shares or guarantee :
ƒåƒnAny company consisting of seven or more members, which was in
existence on the 1st day of May, 1882, including any company registered
under Act No. 19 of 1857 and Act No. 7 of 1860 or either of them or under
any laws or law in force in a Part B State, corresponding to those or either
of them.
ƒåƒnAny company consisting of seven or more members formed after 1st
May, 1882 in pursuance of any Act of Parliament other than this Act or
any other Indian law (including a law in force in a Part B State) or of any
Act of Parliament of the United Kingdom or Letters Patent in force in
India.
ƒåƒnAny other company consisting of seven or more members formed after
1st May 1882 and otherwise duly constituted according to law.
8.3 Non-eligibility
The following categories of companies shall not be registered pursuant to the
above provisions :
C H A P T E R
*RELEVANT PROVISIONS :
ƒåƒnCompanies Act, 1956 : Sections 565 to 567, 569 to 581, Schedules V & X.
ƒåƒnCompanies (Central Government's) General Rules and Forms, 1956 : eforms 1A, 1, 18, 32, 37,
39
APPLICABILITY : JOINT STOCK/NON-JOINT STOCK COMPANIES/FIRMS
ƒåƒnA company registered under the Indian Companies Act, 1882 or under
the Indian Companies Act, 1913.
ƒåƒnAny company whose registered office at the commencement of the Act
is in Burma, Aden or Pakistan.
ƒåƒnA company incorporated outside India.
ƒåƒnA company having the liability of its members limited by any Act of
Parliament other than the Companies Act or any other Indian law
(including a law in force in a Part B State), or by any Act of Parliament
of the United Kingdom or Letters Patent in force in India, and which is
not a joint stock company as defined under the Act.
ƒåƒnA company having the liability of its members limited by any Act of
Parliament other than this Act or any other Indian law (including a law
in force in a Part B State), or by any Act of Parliament of the United
Kingdom or Letters Patent in force in India, shall not register as an
unlimited company or as a company limited by guarantee.
ƒåƒnA company which is not a joint stock company shall not register as a
company limited by shares.
8.4 Registration of Joint Stock Companies as a company limited by
shares
Only Joint Stock Companies shall be registered as a company limited by shares.
8.4-1 Definition of Joint Stock Company
The term ¡§joint stock company¡¨ means a company having 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 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 shall be deemed to be a company limited
by shares.
8.4-2 Registration of Partnership Firms
A partnership firm having a permanent paid-up or nominal share capital of
fixed amount divided into shares also of fixed amount and having 7 or more
members (with only shareholders as members) shall be treated as a Joint Stock
Company and eligible to register under this Part.
8.5 Name Availability
The name availability letter should be obtained from the Registrar of Companies
by complying with the procedure given in Chapter 1. The words "limited"
or "private limited" shall form part of the name unless it is an unlimited
company/Government company/section 25 company.
8.5-1 Change of name for the purpose of registration
If the name of the company seeking registration is one which, in the opinion of
the Central Government, is undesirable, the name of the company may be
changed with effect from the date of registration. For this purpose, the approval
of the Registrar of Companies should be obtained in writing. Further, the assent
of members of the company should also be obtained in a General Meeting
convened for this purpose.
8.6 Substitution of memorandum and articles for deed of settlement
A company registered under Part IX may, by passing a special resolution (Annex
8.1), alter the form of its constitution by substituting a memorandum and
articles for a deed of settlement. Such alteration may be made with or without
any alteration to the objects clause of the company.
8.6-1 Definition of Deed of Settlement
The expression ¡§Deed of Settlement¡¨ includes any deed of Partnership, Act of
Parliament of the United Kingdom, Royal Charter or Letters Patent or other
instrument constituting or regulating the company, not being an Act of Parliament
or other Indian Law.
8.7 Filing of printed copy of substituted memorandum with Registrar
A printed copy of the substituted memorandum and articles of association
should be filed with the Registrar of Companies. The Registrar shall certify the
alteration and thereupon the substituted memorandum shall apply to the
company as if the company is registered under this Act with that memorandum
and articles. The company¡¦s deed of settlement shall cease to apply to the
company.
8.8 General meeting resolution
The registration requires the assent of majority of members present and voting
at a meeting summoned for the purpose. In the case of registration of an
unlimited company as a limited company, the assent required is of threefourths
majority of members present and voting at the meeting. For specimen
resolution see Annex 8.1.
8.8-1 Declaration in case of companies seeking registration as guarantee company
In the case of a company intending to register as a company limited by
guarantee, the assent shall be accompanied by a declaration (Annex 8.2) that
each member undertakes to contribute to the assets of the company in the
event of its winding up while he is a member or within one year after he ceases
to be a member. This contribution shall be for the purpose of payment of debts
and liabilities of the company or of the debts and liabilities as may have been
contracted before he ceases to be a member and for meeting the costs, charges
and expenses of winding up and for adjustment of the rights of the contributories
among themselves to the extent of specified amount.
8.9 Submission of eform 37 with the Registrar
An application in eform 37 (Annex 8.3 for specimen filled in form) should be
filed with the Registrar of Companies through MCA Portal - www.mca.gov.in.
8.9-1 Who can file?
The eform 37 shall be filed by a managing director or director or manager or
secretary duly authorised by the Board and holding Valid Digital Signature
Certificate. (Refer Chapter 360 for Digital Signature Certificate)
8.9-2 Time Limit
This eform should be filed during the validity period of name availability, (i.e.)
within six months of the date of name approval letter issued by the Registrar of
Companies.
8.9-3 Attachments
A copy of the instrument constituting or regulating the company.
8.9-4 How to attach documents?
The attachments shall be in PDF format. A physical document can be converted
into an electronic document through scanning. A soft copy may also be
converted into PDF format and used as an attachment to eform.
8.9-5 Digital Signature
The eform should be digitally signed by a person named in the Articles as a
director, manager or secretary of the company duly authorised by the Board.
(Refer Chapter 360 for Digital Signature Certificate)
8.9-6 Filing and Registration fee
Filing fee should be paid for Memorandum of Association, Articles of Association
and eform 1. In addition, fee for registration of the company shall be paid.
The fees shall be as per Schedule X of the Companies Act, 1956 (Appendix 9).
8.9-7 Exemption from Registration fee
Registration fee need not be paid if it is not proposed to register as a limited
company or if before its registration as a limited company,the liability of
shareholders was limited by some other Act of Parliament or any other Indian
Law or by an Act of Parliament of the United Kingdom, Royal Charter or Letters
Patent in force in India.
8.9-8 Mode of Payment
The fee should be paid through one of the specified modes viz., remittance in
authorised banks, credit card or through internet banking. In case of online
payment, filing process shall be complete immediately and a receipt is generated
by the system. (See Appendix 18).
8.9-9 Procedure in case of off-line payment
In case of remittance through authorised bank, a pre-filled challan containing
the SRN, date of challan, expiry date, name and designation of user by whom
challan is tendered, name and address of the company, particulars of remittance,
total amount and Head of account shall be generated by the system. The
challan should be used for making payment before the date of expiry
mentioned therein and the transaction shall be completed by the concerned
banks.
8.9-10 Non-payment of fee before due date
If the payment is not made by pay by date mentioned in challan, submission of
form shall be regarded as incomplete and an e-mail will be sent to the applicant
that the form cannot be regarded as filed due to non-payment. The status of
payment can be verified through MCA portal.
8.9-11 Filing instructions
Refer Chapter 358 for detailed instructions for filing e-forms.
8.10 Submission of eform 39 with the Registrar
Simultaneously, an application in eform 39 (Annex 8.4 for specimen filled in
form) should be filed with the Registrar of Companies through MCA Portal. This
form is not required if it is proposed to register as unlimited company.
8.10-1 Who can file?
The eform 39 shall be filed by two directors of the company duly authorised by
the Board and holding valid Digital Signature Certificate.
8.10-2 Attachments
The following documents should be attached to the eform
ƒåƒnCopy of the resolution of the general meeting (Annex 8.1) assenting to
registration with limited liability
ƒåƒnCopy of the resolution of the general meeting (Annex 8.2) declaring the
amount of guarantee, where applicable
ƒåƒnList of equity or preference shareholders in standard format as described
in Schedule V.
8.10-3 How to attach documents?
The attachments shall be in PDF format. A physical document can be converted
into an electronic document through scanning. A soft copy may also be
converted into PDF format and used as an attachment to eform.
8.10-4 Digital Signature
The eform should be digitally signed by two directors duly authorised by the
Board.
8.10-5 Filing fee
Filing fee shall be as per Schedule X of the Companies Act, 1956 (Appendix 9).
8.10-6 Mode of Payment
The fee should be paid through one of the specified modes viz., remittance in
authorised banks, credit card or through internet banking. In case of online
payment, filing process shall be complete immediately. (See Appendix 18)
8.10-7 Procedure in case of off-line payment
In case of remittance through authorised bank, a pre-filled challan containing
the SRN, date of challan, expiry date, name and designation of user by whom
challan is tendered, name and address of the company, particulars of remittance,
total amount and Head of account shall be generated by the system. The
challan should be used for making payment before the date of expiry
mentioned therein and the transaction shall be completed by the concerned
banks.
8.10-8 Non-payment of fee before due date
If the payment is not made by pay by date mentioned in challan, submission of
form shall be regarded as incomplete and an e-mail will be sent to the applicant
that the form cannot be regarded as filed due to non-payment. The status of
payment can be verified through MCA portal.
8.10-9 Filing instructions
Refer Chapter 358 for detailed instructions for filing e-forms.
8.11 Filing of eform 1 with the Registrar of Companies in case of
firms
In case of partnership firms proposed to be registered as joint stock company
under Part IX, a declaration as per eform 1 (Refer Para 2.10 for procedures
and Annexes 2.6 and 2.7 for specimen forms) should be filed with the Registrar
of Companies.
8.12 Filing of eform 32 with the Registrar of Companies
In case of partnership firms, a return containing particulars of directors as
per eform 32 (Refer Para 2.11 for procedures and Annexes 2.8 and 2.9 for
specimen forms) should be filed with the Registrar of Companies.
8.13 Filing of eform 18 with the Registrar of Companies
In case of firms a declaration as per eform 18 (Para 2.12 for procedures and
Annex 2.10 for specimen forms) should be filed with the Registrar of Companies.
8.14 Uploading of eforms
All the eforms should be filed one by one for which the system will display a
message. A combined receipt (in case of on-line payments) or challan (in case
of off-line payment) shall be generated by the system.
8.15 Certificate of Registration
On compliance with the requirements with respect to registration, the
Registrar of Companies shall certify under his hand that the company applying
for registration is incorporated as a company under the Companies Act, 1956
and in the case of a limited company that it is limited and thereupon, the
company shall be so incorporated. When a company is registered with limited
liability, the words ¡§Limited¡¨ or ¡§Private Limited¡¨ as the case may be, shall form
the last word or words of its name and shall be registered as such.
8.16 Effect of Registration under Part IX
On such registration, all property, movable and immovable (including actionable
claims), belonging to or vested in a company at the date of its registration,
shall vest in the company as incorporated under this Act for all the estate and
interest on the company therein. The registration shall not 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 company before registration. All suits and
other legal proceedings taken by or against the company, or any public officer
or member thereof, which are pending at the time of registration may be
continued in the same manner as if the registration had not taken place.
8.17 Applicability of Act to Part IX Companies
When a company is registered under this Part, all provisions contained in any
Act of Parliament or other Indian Law or other instrument constituting or
regulating the company, including the resolution declaring the amount of
guarantee [in case of companies limited by guarantee] shall be deemed to be the
regulations of the company as if the company has been formed under this Act.
Further, all the provisions of the Act shall apply to the company and the
members, contributories and creditors in the same manner in all respects as if
it had been formed under this Act, subject to the following :
ƒåƒnTable A in Schedule I shall not apply unless it is adopted by special
resolution.
ƒåƒnThe provisions of the Act relating to numbering of shares shall not apply
to any joint stock company whose shares are not numbered.
ƒåƒnThe company shall not have any power to alter any provision contained
in any Act of Parliament or other Indian Law relating to the company.
ƒåƒnThe company shall not have power, without the sanction of the Central
Government, to alter any provision contained in any Act of Parliament of
the United Kingdom, Royal Charter or Letters Patent, relating to the
company.
ƒåƒnThe company shall not have power to alter any provision contained in
any Act of Parliament or other Indian Law or in any Act of Parliament of
the United Kingdom, Royal Charter or Letters Patent, with respect to the
objects of the company.
ƒåƒnIn the event of the company being wound up, every person, who is liable
to pay or contribute towards debts or liabilities contracted before
registration or adjustment of rights of members among themselves or
cost, charges and expenses of winding up shall be a contributory in
respect of debts and liabilities of the company contracted before registration.
ƒåƒnIn the event of the company being wound up, every contributory shall be
liable to contribute to the assets of the company all sums due from him
in respect of any liability. In case of his death or insolvency, the liabilities
shall devolve on legal representatives or assignees as the case may be.
ƒåƒnThe provisions of the Act with reference to¡X
(i) the registration of unlimited company as a limited company,
(ii) the powers of an unlimited company to increase the nominal
amount of capital,
(iii) the powers of an unlimited company to provide that a portion of
share capital shall not be capable of being called up except in the
event of winding up,
(iv) the powers of a limited company to provide that a portion of share
capital shall not be capable of being called up except in the event
of winding up,
shall apply notwithstanding any provisions contained in any Act of
Parliament or other Indian Law, or other instrument constituting or
regulating the company.
ƒåƒnThe company shall not alter any provision contained in any instrument
constituting or regulating the company as would, if the company had
originally been formed under this Act, have been required to be contained
in the memorandum and are not authorised to be altered by this
Act.
ƒåƒnWhere an order has been made for winding up or a provisional liquidator
has been appointed for a company registered in pursuance of this Part,
no suit or other legal proceedings shall be proceeded with or commenced
against the company or any contributory of the company in respect of
any debt of the company, except by leave of the Court1 and except on
such terms as the Court may impose.
1. The powers of court in this regard shall stand transferred to National Company Law Tribunal
when the Companies (Second Amendment) Act, 2002 is brought into force and the Tribunal
is constituted.