A partnership firm and a private limited company, both are good business entities suited for entrepreneurs. However, there are some things that a partnership firm lacks in.
To remove such a drawback, entrepreneurs around India are moving towards partnership to private limited company conversion. In this article, we are going to look into the process of that conversion along with the reason why it’s suitable for entrepreneurs to have a private limited company.
Why to convert from a partnership to a private limited company?
One question that we are often asked is this “Why do you always suggest converting some business entity into a private limited one? It’s not like there is a difference”. Yes, there is a difference. A private limited company, although “limited” in scope, provides the best infrastructure for a business. But that’s not the only reason why conversion of partnership into private limited company is a good idea. There are other reasons and they are listed down below:
- Limited Liability: A partnership firm, although provides a way to earn money in an unlimited fashion, it also puts unlimited burden over the partners. If the firm goes through any loss, all the partners have to take the losses, and because a firm and the partners are not separate entities, the partners can lose their personal assets. That’s the not the case with private limited company however. It provides limited liability where the directors/shareholders are only liable for the company’s losses to the extent of their contributions in the capital.
- Easier to incorporate: A private limited company is far easier to incorporate than a private limited company. Yes, it sounds a bit weird considering it’s the company that’s actually a legal entity but hear us out. The process of incorporation of a private limited company is more streamlined than a partnership firm.
- Easy to access funds: When you suffix “limited” or “ltd” or “Limited company” or “ltd company” with a business name, it automatically becomes more trusted. As a result, the banks are more open to give them funds.
- More trusted: By the virtue of its name, a private limited company is more trusted than a partnership firm.
Process to convert a Partnership Firm to Private Limited Company
Now, let’s jump into the meat of topic and let’s convert partnership firm into private limited company. The process is as follows:
- Hold a meeting of all the active partners: Hold a meeting of all the partners and take their consent to convert the firm into a private limited company. You don’t need everyone to agree, just 75% of them.
- Get approval from the creditors: Next, get approval from the creditors to convert partnership firm into private limited company.
- File the application to get the name approved for your private limited company; Once you’ve decided to convert your partnership into a private limited company, you need to take care of the name and ensure that your partnership firm’s name can be registered as the name of the company. For that purpose, file the RUN Application.
- Publish the advertisement about the change of business entity: Now, you need to make people aware that you are shifting your firm into a company. For that purpose, use the FORM URC 2. It will publish your advertisement informing people about the change in the newspaper. You have to publish the advertisement in two places: one in the national news paper in the official language and one in the regional newspaper in the regional language.
- File an affidavit: Now, file an affidavit on behalf of all the partners to provide the event of conversion and attach all the required documents including your assets and liabilities certificate, DSC, dissolution of the partnership firm and others.
- File the necessary documents to the ROC: The Registrar of Companies will then receive some important forms from your end. These will for conversion, private limited company registration, charter documents and MOA and AOA.
As soon as your documents are approved by the ROC, the conversion process will be complete.
Converting your firm into a private limited company is fine and dandy but, if you want to successful business, choose a private limited company from the start. The private limited company registration India is our process to get your company setup on time and at a good price. That said, whatever you need, conversion or registration, we are here to help.