PARTNERSHIP FIRM INTO A LIMITED COMPANY

 

 

PROCEDURE FOR CONVERSION OF PARTNERSHIP FIRM INTO A LIMITED COMPANY

After having decided to form a company to take over the business of their partnership firm, the partners should take the following procedural steps for the formation and registration of the company:

An existing business of partnership can be converted into a company in any of the following ways:

 

(i) by outright sale

(ii) by making partners of the firm the only shareholders of the newly incorporated company

(iii) a company becoming a partner of the firm which will be disclosed thereafter

(iv) by amalgamation under section 391 to 394 of the Companies Act, 1956

(v) by registration of existing joint stock companies under section 567 of the Companies Act, 1956 2

 

2. In case of above items (i), (ii) and (iii), following procedure should be followed:

 

a. The existing business should be converted into a partnership firm and the newly incorporated company be admitted as its partner.

b. At the time of forming the new company, it should be ensure that the proprietor of the existing business and any other individual are the subscribers to that company's memorandum of association, thereupon that other individual must also be admitted as a partner of the converted firm.

c. Distribution of all assets and liabilities of the firm to one of the partners who will pay the difference to other partners must be provided in the partnership deed.

d. It must be ensured that the memorandum of association of the newly formed company includes a clause permitting the company to acquire the undertaking of an existing business.

e. It must be ensured that the articles of association of the newly formed company give power to its directors to enter into agreement facilitating the acquisition of business.

f. An agreement with the directors of the newly formed company for facilitating the acquisition of the partnership firm must be entered into.

g. A copy of the agreement must be filed with the Registrar within 30 days of entering into the agreement (section 192), after paying the requisite fee as prescribed under schedule X to the Companies Act, 1956.

h. Thereupon a Board Resolution for allotment of shares to the other partners of the firm as consideration of such acquisition should be passed.

i. A return of allotment in e-form-2 along with the attachment should be filed with the Registrar within 30 days of making the allotment as per section 75 of the Companies Act, 1956.

3. If the partnership firm being a joint stock company within the meaning of section 566 wants to be registered as a company, then all the following documents should be delivered to the Registrar of Companies:

(i) an application in electronic Form-37

(ii) a list showing the names, address and occupations of all persons who on a day not more than 6 clear days before the day of registration where members of the company and the shares or stock held by each one of them respectively, distinguishing each share by its number in case the shares are numbered       

(iii) a copy of the partnership deed

(iv) a statement containing the following particulars:

 

a) the nominal share capital of the company and the number of shares into which it is divided or the amount of stock of which it consists

(b) the number of shares taken and the amount paid on each shares; (c) the name of the company and the addition of the world "Limited" or "Private Limited" as its last words; (d) a copy of the resolution declaring the amount of guarantee if you want to register it as a guarantee company (Section 567).

 

 These days , partnership firms are converting into limited companies for getting the benefit of limited liabilities . At this time firms book is closed just like dissolution of firms .

 

In the books of firms , the following journal entries are passed :

1) For closing the accounts of assets

Realisation account Debit
Assets Account Credit ( At book value )

2) For sale of assets and amount received

Cash /Bank Account Debit
Assets Account Credit
Realisation Account Credit

3) For closing the account of liabilities

Liabilities Account Debit
Realisation Account Credit

4) For Payment of liabilities

Realisation Account Debit ( Loss of payment )
Liabilities Account Debit
Cash / Bank account credit

5 ) For Assets and liabilities are taken over by new company

New Company Account Debit ( Purchase price = Agreed value of assets – agreed value of liabilities )
Realisation account Credit
6) For Payment of expenses of realisation

a) If pay by partner
Realisation Account Debit
Cash / Bank Account Credit
b) If pay by new company
New company Account Debit
Cash /Bank account Credit
7) Closing of Realisation account

If profit
Realisation account Debit
partner’s capital Account Credit
8 ) Receipt of purchase price

Cash / Bank /Shares / Debentures Account Debit
Purchasing company Account Credit

9 ) On distribution of shares / debenture and cash from purchasing company

Partner’s capital account Debit ( dividing in adjusted capital ratio )
Cash/Bank/ Shares /Debenture Account
After journal entry , you can transfer into ledger for making realisation account , company account , partner’s capital account

 

 

 

 

 

Reference

https://groups.google.com/forum/#!msg/csmysore/9EJJh9-Lv0Q/XEiOhBN6AQgJ

http://csdhanapal.com/wp-content/uploads/2013/06/CASC-Bulletin-vol-8-issue-8-Nov-2009.pdf

http://myllpregistration.com/conversion-of-private-limited-company-to-llp.html

http://www.icai.org/resource_file/202184.pdf

http://taxguru.in/company-law/procedure-for-conversion-of-partnership-firm-into-company-and-provision-of-companies-act-1956-and-the-income-tax-act-1961.html

http://www.caclubindia.com/articles/note-on-conversion-of-partnership-firm-into-a-limited-company-16345.asp#.Uvigfc7YF04

http://www.lawyersclubindia.com/experts/Conversion-of-partnership-firm-into-private-limited-company-426176.asp#.Uvign87YF04

http://www.citehr.com/191563-conversion-partnership-firm-into-private-limited-company.html

http://www.slideshare.net/BMCIndia/procedure-in-conversion-of-partnership-firm-into-llp

http://ourprofessionalteam.com/index.php?option=com_content&view=article&id=171&catid=20&Itemid=37

 

 

 

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