Patnership to PVT Ltd in Gujarat, Few queries

Gautam Patel (Business Owner) (37 Points)
Replied 26 March 2011

Any answer Please

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 26 March 2011

My replies are marked in YELLOW:

1. Do we require 7 partner to convert into Pvt Ltd (currently we are only 2 partners having share of 50 /50)

Yes You need to have 7 parts to convert into private limited

2. How will be shares divided after conversion into pvt ltd

It will be in the same proportion as they had it in the partnership

3. We currently have depositers in our firm, what will happen to them? How to pay interest in Pvt. Ltd.

As per companies act , 1956, a private company cannot accept public deposits. It can accept loans only from members, directors or their friends. So either you convert the depositors as members or directors and convert the deposits as loans. Or alternatively return the deposit.

4. What will happen /What is to be done to the assets of the partnership firm (Like land, building, machinery etc.)

After conversion under Part IX of the Companies Act, all assets and liabilities of partnership will vest on the company.

5. What will happen to liabilities of the partnership firm?

Already replied above

6. How is the partners (directors) paid the interest for their capital accounts?

No interest will be paid on their capital. However they will be paid dividend on the profits made by the company

8. How is the remuneration to be paid to directors?

A private company is free to pay any remuneration to its directors. The limits on managerial remuneration is applicable to public companies only.

9. As per my CA all the profit what we do currently is free and any partner can borrow money from their capital account but in pvt ltd. firm it will not be possible, is it true or not?

When the company earn profits, it can be distributed to the members by way of dividend, after transfer of certain %age of profits to Reserves.

Yes, there are restrictions on borrowing from the company under Section 295 of the Companies Act, 1956. However those provisions are not applicable to pure private companies.

There are lot of advantages in getting the partnership converted into private company viz., limited liability, continutiy of the company, transfer of shares, etc.

However statutory complianes are definitely more in case of companies as compared to Partnership.

My advice to you is get in touch with a good CA or Company Secretary who can properly guide you on this matter.

1 Like

CA Saiyum khan (Practicing CA) (690 Points)
Replied 26 March 2011

6. A director can invest fund in the company as a Depositor at fixed rate of interest and as Share capital. Interest can not be paid on the equity share capital poriton, but interest on deposit can be paid at regular interval as per mutual arrangment.

1 Like

Gautam Patel (Business Owner) (37 Points)
Replied 26 March 2011

Dear Ms. Iyer,

I am very thankful for your reply.

For question 3 you have mentioned their friends, what does "friends" mean for this clause. Depositors we have rightnow are majority immediate family members and rest are paternal / maternal cousins.

Can you please also explain "Members".

For Question 4, we have the land in the name of the current firm. So do we have to re-register the documents with subregistrar and pay the land stamp duty or it will be just transferred to the pvt ltd. in books of accounts.

Thanks again.

Gautam Patel (Business Owner) (37 Points)
Replied 26 March 2011

Dear Mr. Khan,

Thank you for your reply.

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 26 March 2011

My answers are marked in YELLOW:

For question 3 you have mentioned their friends, what does "friends" mean for this clause. Depositors we have rightnow are majority immediate family members and rest are paternal / maternal cousins.

Sorry it's not friends, it is to be read as relatives. Loan from members, directors or their relatives can be accepted by a private company. If the money borrowed is from relative of directors no issues, just take a letter from them that they are giving this money out of their own funds and not from borrowed funds.

Can you please also explain "Members".

Members means shareholders whose names are entered in the register of members. Members can be other than directors.

For Question 4, we have the land in the name of the current firm. So do we have to re-register the documents with subregistrar and pay the land stamp duty or it will be just transferred to the pvt ltd. in books of accounts

On conversion, the property will vest in the name of the company and no need to re-register and pay stamp duty. But in some of the States Registration Officials fail to understand that the previous firm and the new company are one and the same and create problems. You need to take up the matter with concerned authorities and sort out the issue.

1 Like

Gautam Patel (Business Owner) (37 Points)
Replied 26 March 2011

Dear Ms. Iyer,

Thanks again for your reply.

Best wishes to this forum.

Can you tell me why 7 partners are required for conversion of partnership to pvt ltd. as I have read in this forum like company having only 2 directors and no one else not even employees.