Propreitor to Company

Reorganisation Of A Propreitorship Into A Company

Corporatisation is the need of the hour. The entire world is gradually drifting towards one global market without any trade barriers between the countries. A small organisation led by few partners cannot think of growth on large scale without corporatising itself. Corporatisation have their own advantages such as Limited Liability, Perpetual Succession, Transferability of shares, Expansion etc. Conversion of a proprietorship firm to a company shall be done under the provisions of the Companies Act, 1956 and the Income Tax Act, 1961.

There would be 2 options available to a partnership firm for continuing the business in the form of a Company :

• To dissolve the firm and incorporate a new company under the Companies Act, 1956; or
• Incorporate a company which can legally take over the business of the firm and continue the same business under Part IX of the Companies Act, 1956

The firm may be converted into a company by following the provisions of Part IX of the Companies Act, 1956 since there are many benefits which both the company and the firm stand to enjoy.

Circular No. 5/99 dated 19-5 -99 and Press Release dated 5/8/99, clarified that, the Registrar of Companies will continue to register Partnership Firms under Part IX of the Companies Act as Joint Stock Companies on satisfying the procedure and conditions. Accordingly, an existing Partnership Firm can be registered under the Companies Act.

STEPS FOR INCORPORATION OF COMPANY UNDER PART IX :-

Step 1 : Hold a meeting of the partners to transact the following :

• 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. The majority required to assent as aforesaid shall consist of not less than 3/4 of the Members as are present in person or where proxies are allowed, by proxy.
• 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 as under:
• There must be atleast 7 partners in the partnership firm in case conversion is for limited company and 2 partners in case the conversion is for a private limited company
• The firm may be registered with the Registrar of Firms;
• There must be a fixed capital divided into units.
• There must be an agreement by the partners to convert the partnership to a company. This can be done by a contract in writing to this effect to which the partner’s resolution for conversion can be attached as annexure.

Step 2 : Application for Director’s Identification Number And Digital Signaturers Certificate

Step 3 : Name approval of company

Step 4: Filling of MOA & AOA and fee to MCA / ROC

Step 5: Form No. 37 – This form is an application by an existing Joint Stock Company for registration as a limited / an unlimited company.

1. Declaration by two partners verifying the particulars set forth in the above mentioned documents.
2. Consent letters from Directors
3. Filing fees as may be applicable.

Step 6 : On completion of the formalities, the registrar shall register the Company under Part IX of the Act and issue a certificate of incorporation.

Steps for Incorporation of a public limited company :

First Five stages are almost same for incorporation of a public limited company except there should be at least seven subscribers, three directors and the minimum paid up capital of Rs. 5 lacs.

After completion of first three stages a private limited company may commence its business but a public limited company is required to obtain certificate for commencement of business from Registrar of Companies. For obtaining the Certificate for commencement of its business, the Company is required to submit following documents with Registrar of Companies :

• Form 20 to be executed on a non-judicial stamp paper.
• Statement in lieu of Prospectus.
• Affidavit from each directors stating that the Company has not commenced its Business.
• Details of Preliminary expenses.
• Board Resolution for approval of preliminary expenses.
• Board resolution for appointment of first Auditors.
• Consent letter from the Auditors for acting as Statutory Auditors.

Registrar of Companies thereafter shall process the documents and if all the documents are in order then roc will issue a Certificate for commencement of Business.