03 April 2009
A sole proprietorship is being converted to a private company. How should we go about with the accounting? How to account for the consideration being shares in the company? Also what entries to pass for the changeover?
03 April 2009
Conversion of Partnership Firm into Private Limited Company
Essentials of Partnership deed
1. Minimum Seven Partners.
2. Firm have a fixed paid up or authorized capital divided into units or shares of fixed amount.
3. Shares are freely transferable.
4. One of the modes of dissolution is by transfer of shares of partners to the company.
5. Deed may be required to be registered (View of ROC)
6. Profit sharing in the ratio of capital employed by partners.
Essentials of Memorandum of Association
1. Object clause of memorandum should permit the new company to acquire the business and also the assets and liabilities of the partnership firm.
Essentials of Articles of Association
1. Articles of Association should provide for the issue and allotment of shares to all the subscribers of the Company, being partners of the firm, in lieu of their share being transferred to the Company.
2. Articles should also authorize the Directors to enter into agreements and adopt agreements relating to acquisition.
Procedure
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 decide the name of the proposed Company. (At least four names)
• 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 under the Company law.
• Execute a settlement deed.
Step 2
Application for name availability
• Application shall be made in Form No. 1 A along with the following documents
1. Certified true copy of Partnership Deed.
2. Certified true copy of the latest balance sheet of the partnership.
3. Certified true copy of the latest income tax assessment order/return.
4. Consent of all the partners stating that they have agreed to register the partnership firm as a Company .
5. Certified True Copy of the resolution passed by the firm in this regard .
Step 3 Registration of Company
• On obtaining the approval of name , file the following documents with the registrar :
1. Name approval letter.
2. Form No. 18
3. Form No. 32
4. Two sets of Memorandum and Articles of Association of the Company . One set shall be duly stamped . Object clause of memorandum should permit the new company to acquire the business and also the assets and liabilities of the partnership firm. Articles of Association should provide for the issue and allotment of shares to all the subscribers of the Company , being partners of the firm , in lieu of their share being transferred to the Company. Articles should also authorize the Directors to enter into agreements and adopt agreements relating to acquisition .
5. Form No. 37 along with Form No. 39, 40 & 41 .
6. Declaration by two partners verifying the particulars set forth in the above mentioned documents.
7. Power of Attorney for corrections etc.
8. Filing Fees.
Step 4
• On completion of the formalities, the registrar shall register the Company under Part IX of the Act and issue a certificate of incorporation.
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