Conversion of Partnership Firm into Company

Conversion of Partnership Firm into Company: Introduction

On 20th September, 2019, the Taxation (Amendment) Ordinance,2019 was introduced by the Government of India. the new amendments and provisions have provided with certain tax beneficiaries to taxpayers and to different types of Company Registration in India. Some of the beneficial changes that have been mandated through this ordinance or statute are-

  • The rate of MAT has been reduced to 15% from the previous rate of 18.5%.
  • For the manufacturing companies a new tax rate of 15% has been introduced.
  • A 22% corporate tax cut has been provided for the domestic companies.

Due to such taxation benefits most of the partnership firms are converting themselves into company registration, in order to enjoy the new tax rates. The process of conversion of Partnership firm into a company Registration is simple and non-complex. It is governed by the following statutes and laws-

  • Stamp Notification of the State.
  • Section 47(XIII) of the Income Tax Act, 1961.
  • Section 366 of the Companies Act, 2013.
  • Companies (Authorized to Register) Rules, 2014.

Process involved in Conversion of Partnership Firm into Company Registration:

The process for converting a partnership firm into a company is divided into three main steps that are as followed-

  • In order to convert a partnership firm into a company registration a meeting is to be held where all the partners must be present. This is done for taking assent to authorize one or more partners to undertake the registration process on behalf of other partners.
  • A written consent is to be obtained from all the secured creditors of the firm.
  • The firm is required to make an application in RUN for availability of name. These following points must be undertaken by the entity while converting it to a company registration-
  • An amendment if required is to be made in the partnership deed stating a clause of conversion of the partnership firm.
  • In the Form No. URC-2, a clear advertisement for 21 days is to be published in English as well as local language.
  • The Form No. URC-2 is to be filed with the Registrar of Firms (ROF).
  • The accounts statement must be prepared within fifteen days of seeking the company registration and the same is to be certified by an auditor.
  • An agreement among the partners is to be made and signed for conversion of the partnership firm.
  • In the second phase of the process the firm is required to file various forms as mandated by the Registrar of Companies (ROC) and Registrar of Firms (ROF). The following documents are to be filed-
  • Form URC-1
  • Form Spice-32
  • Form Spice-33
  • Form Spice-34
  • Form-AGILE
  • A consent to act as a director is to be filed in the Form DIR-2. As prescribed by the Companies Act, 2013, there can be different type of Directors in a Company
  • An undertaking is to be issued stating that the proposed directors will make sure that the provisions provided in the Indian Stamp Act, 1899 are complied with.
  • A duly verified list by two or more proposed directors of the company registration is to be declared stating the name of all the directors and members.
  • From the concerning Registrar of Firms (ROF), a No-Objection Certificate is to be obtained.
  • All the partners of the firm are required to submit affidavits for the dissolution of the partnership firm.
  • A rent agreement or a No-Objection Certificate is to be obtained from the property’s owner.
  • The accounts statement must be prepared within fifteen days before the seeking of the company registration and the same is to be certified by an auditor.
  • In the last phase of the conversion of partnership firm to a company registration process, an intimidation is to be given to the Registrar of Firms (ROF). The company after its registration have to acknowledge and intimate the R0F about the same within 15 days from the date of registration.

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.
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