Conversion of partnership firm to company.

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Mukundha.DS (Querist)
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12 February 2015 Dear Sir/Madam,

Please help me in finding a procedural aspect for conversion of partnership/ proprietorship concern into Public company as per reference to Companies Act, 2013.

Suggest me any case laws, if any.

prince mathew

prince mathew (Expert)
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13 February 2015 better is to register a new company in the same name and takeover the business of partnership and then dislove the partnership. Coversion is very diffcult

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Mukundha.DS

Mukundha.DS (Querist)
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13 February 2015 Thank you Sir,

The conversion may be its difficult but i need to know the procedure for conversion.

Regards,
Mukundha.

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Arjun Menon

Arjun Menon (Expert)
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14 February 2015 Ms./Mrs. Mukundha;
Firstly, you're question concerns two aspects;
A) Converting a Sole Proprietorship into a Company
B) Converting a Firm into a Company;
Hence my answer would be divided in two parts:

A: For Conversion of a Sole P'ship into a Company: The process is fairly simple as compared to converting from a firm.

The Procedure is as follows:

1. Firstly make sure the proposed directors have DIN no(s), if they dont, then apply for the same in From DIR-3,(which gets approved instantly) (these days its mandatory for the PCS,PCA or PCWA to sign) so get it instantly, with the paid challan.

2. Next Step is to apply for the name in Form INC-1, make sure if you intend to use the existing name of your business then kindly, get a NOC to that effect of the sole proprietor and attach the same with the form.

3. Once you've successfully filed INC-1, after the name is approved, you'll have 2 months to file the requisite documents, now here's where the trick part lays,
In Main Objects, which, at least the Mumbai ROC has restricted to only two in number. Mention taking over of the existing sole p'ship business as a going concern in your Main Objects.

After you've compiled all the documents, which are as follows:-
a. DIR-9 Affidavit for first directors
b. INC-8 Declaration by Practicing Professional
c. Specimen Signature verification in form INC-10
d. Identification Documents for the proposed directors (PAN, Adhaar, etc)
e. AOA and MOA (kindly fill all details in the last page in your Handwriting, and paste photographs of the subscribers)

Once this is done: Simultaneously fill DIR-12 for appointment of DIRECTORS
INC-22 (optional): you can also file this within 30 days from the date of incorporation u/s. 12(4)

Once you receive the Incorporation Certificate, then hold a statutory meeting within 30 days, and in this meeting pass a special resolution to acquire you're existing sole prop business as a going concern and file the same in form MGT-14 within 30 days.

Viola!, you've just converted your sole Prop'ship into a company.

Same procedure for converting it into public company, just the constitution in terms of number of members and the capital would increase.

There would be no Taxation Implication, as you can avail the benefits of Section 47(xiv) of the Income Tax Act, 1961.
There are certain restrictions that one has to follow for the next 5 years from conversion, plus the sole proprietor should hold majority stake.

Now for part B:
This is process is slightly different and time consuming;
Firstly, if your
Firm is not registered within the purview of the Partnership Act, 1932; then the first course of action will be to register it.
Secondly, conversion of a firm into a company will be governed by the provisions of Section 366 read with Rule 3 of Companies (Authorized to Register) Rules, 2014

a. You need to have 7 partners at least, to be able to register as a company (personally I feel this is a useless provision, it makes no sense, you shouldn’t be compelled to induct new partners, just to convert your business into a company)
b. Once this is done, i.e. inducting and registering the same with Registrar of Firms, you have to apply for reservation of name in INC 1, as explained above, then you have to file forms INC 7(as stated above) with form URC-1 simultaneously.
c. Kindly note, there are certain documents, information and NOC’s you have to obtain prior to this:
i. Particulars of partners along with details of shares held by them
ii. Declaration of proposed directors to verify the above mentioned details vis-à-vis, attesting the other member’s details.
iii. Affidavit from all the partners for dissolution of the entity
iv. Copy of the partnership deed
v. Copy of newspaper advertisement(stating the same i.e. public notice for conversion)
vi. Certificate from PCA,PCS or PCWA certifying the compliance with all the provisions of the Stamp Act, to the extent applicable
vii. NOC from secured creditors to the extent, they have no objection with respect to the conversion.
viii. Whilst drafting the MOA, include taking over of the business in the Main Objects ( The law doesn’t mandate this, but its always good to have it on public record, as MOA is in the end, a public document)
Then the rest of the procedure is same as regards DIR-12 and INC-22.
Similarly you can claim the same benefits under the IT Act, 1961, with respect to capital gains.

Hope this was helpful, for further queries (if any) you can mail me at avarjunmenon@gmail.com