BRIEF NOTE ON CONVERSION OF PARTNERSHIP FIRM UNDER PART IX OF COMPANIES ACT The firm may be converted into a company by following the provisions of Part IX of the Companies Act, 1956. Sections 565 to 581 deal with conversion of firms into a company under the Companies Act, 1956. For the purpose of Part IX so far as it relates to the registration of companies limited by shares, a joint stock company means, a company having a permanent paid up or nominal share capital of fixed amount divided into shares or held and transferable as stock, or divided and held partly in the one way and partly in the other, and formed on the principle of having for its members the holders of those shares or that stock, and no other persons. Such a company, when registered with limited liability under the Companies Act, 1956 shall be deemed to be a company limited by shares. A company cannot be registered under part IX unless the 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 is obtained. Since the liability of the members of the firm is unlimited, when a firm desires to register itself as a company under Part IX as a limited company, the majority required to assent as aforesaid shall consist of not less than ¾ of the members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose. Pursuant to Section 565 of the Act any company formed in pursuance of any Act of Parliament (other than Companies Act) and consisting of seven or more members, is capable of being registered under Part IX.  Accordingly a registered partnership firm with seven or more partners can get itself converted as a private limited company under Companies Act, 1956. For the purpose of registration, a list of members (partners), the list of which is not being more than six days with the number of shares held by them along with certain other documents are required to be delivered to the Registrar of Companies:   The name of the partnership firm shall be name of the Company to be registered under this proviso. Accordingly the name of the partnership firm whether available with Ministry of Corporate Affairs needs to be ascertained. In case of similarity alternative name needs to be obtained and accordingly the name of the firm shall be changed and registered as required under Partnership Act with sub-registrar. On compliance with the requirements of the provisions of Part IX with respect to registration and on payment of required fee the company shall be registered. Upon registration under Part IX, all property, movable and immovable (including actionable claims) belonging to or vested in a company at the date of its registration shall on such registration pass to and vest in the company as incorporated under this Act for all the estate and interest of the company therein.  The effect of this is that there is an automatic vesting and divesting.  The old company (firm) is divested of the properties and the new company (private limited converted under this part) is vested with properties. The vesting being statutory, no registered instrument of transfer is necessary.  As regards the liabilities the registration of a company (Firm) in pursuance of Part IX shall not affect its rights or liabilities in respect of any debt or obligation incurred or any contract entered into, by, to, with or on behalf of the company before registration. All suits and other legal proceedings taken by or against the company (firm) which are pending at the time of registration may be continued in the same manner as if the registration had not taken place. PROCEDURE FOR INCORPORATION OF COMPANY UNDER PART IX Hold a meeting of the partners to transact the following business ·         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. Since the liability of the members of the firm is unlimited, when a firm desires to register itself as a company under Part IX as a limited company, the majority required to assent as aforesaid shall consist of not less than ¾ of the members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose. ·         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: o   There must be at least 7 partners in the partnership firm; o   The firm may be registered with the Registrar of Firms; o   There must be a fixed capital divided into units ; o   There must be provision of converting a firm into company. o   There must be an agreement by the partners to convert the partnership to a company. ·            Execute a settlement deed. Name Approval ·         An application in Form No. 1A needs to be filed with the Registrar of Companies (ROC) with following annexure(s) stating the fact that the partnership firm pro­posed to be converted under part IX of the Companies Act. ·         Certified true copy of Partnership Deed. ·         Certified true copy of the latest balance sheet of the partnership. ·         Certified true copy of the latest income tax assessment order/return. ·         Consent of all the partners stating that they have agreed to register the partnership firm as a Company. ·         Certified True Copy of the resolution passed by the firm in this regard. ·         The application is required to be digitally signed by one of the promoters. Registration of Company   ·         On obtaining the approval of name final documentation given separately needs to be filed along with Memorandum & Articles of Association along with Form 1, 18, 32, 37 & 39 ·         On completion of the formalities, the registrar shall register the Company under Part IX of the Act and issue a certificate of incorporation. STEPS AFTER INCORPORATION OF PRIVATE COMPANY Once the new company is formed, the takeover agreement would be entered between the Partnership Firm and the newly incorporated company. Convene a Board Meeting after giving notice to all the directors of the newly incorporated company immediately after incorporation as per section 286 of the Companies Act, 1956 to adopt the agreement entered into by the company and the partner of the firm for the acquisition of business of the firm. In such a situation, the entire business of the firm along with all its assets and liabilities is transferred to the company. The company may issue shares or other securities to the Partner of the firm in line with the share in the partnership firm. ****