# Convert Partnership Firm to Private Limited Company

> A partnership firm becomes a private company either by registering itself as a company under Section 366 of the Companies Act (Form URC-1 with SPICe+), or by forming a new company and transferring the business. The transfer is tax-neutral under Section 47(xiii) if all the firm's assets and liabilities pass to the company, all partners become shareholders in the same proportion as their capital accounts, they receive only shares, and together keep at least 50% of the voting power for five years.

Practice: Conversions, Changes & Closure — https://www.industax.com/services/business-changes/

Section 366 lets an existing firm 'register' as a company, carrying its assets, liabilities and contracts over by operation of law, which is cleaner than an asset-by-asset transfer. It needs the consent of a majority of partners, a public advertisement and the Registrar's approval.

We map the partners' capital accounts to share capital, check the five-year conditions against the founders' plans, and then migrate GST (with ITC-02 for unutilised credit), bank accounts, licences and contracts. Breach of the conditions makes the gain taxable in the company's hands under Section 47A(3).

## Key facts

| Item | Detail |
| --- | --- |
| Routes | Section 366 registration (URC-1) or new company + business transfer |
| Tax exemption | Section 47(xiii) with 5-year conditions |
| Shareholding | Partners in the same proportion as capital accounts |
| Voting | Partners together hold ≥ 50% for 5 years |
| Losses | Carry-forward allowed under Section 72A(6) if conditions met |

## Who needs this

- Firms raising outside equity
- Partners wanting limited liability and perpetual succession
- Firms whose customers or tenders require a company

## What's included

- Choice of route and tax-condition check
- URC-1 / SPICe+ filings and advertisement
- Share allotment matching capital accounts
- GST, bank and licence migration

## Documents

- Partnership deed and registration certificate
- Latest audited or certified financial statements
- Partners' consent and KYC
- NOC from creditors where required

## Process

1. **Plan** — Route and shareholding agreed.
2. **Convert** — URC-1 and SPICe+ filed; certificate issued.
3. **Migrate** — Firm closed in records; registrations moved.

## Also covers

- **Partnership to OPC** — Not available — an OPC has only one member.
- **Section 366 registration** — Registration of an existing firm as a company.

## FAQs

### Is it better to convert a firm to an LLP or a company?

An LLP keeps compliance lighter and suits professional or family firms. A company is better if you plan to raise equity, issue ESOPs or bring in many investors. Both conversions can be structured to avoid tax, but the conditions differ.

### Can an unregistered partnership firm be converted?

The business can still be moved into a company by incorporating it and transferring the business, and Section 47(xiii) is not limited to registered firms. Section 366 registration is simpler where the firm's documents are in order.

### What happens to the firm's name and PAN?

The company gets a new PAN and the firm's PAN becomes inactive after its final return. The firm's name can be carried into the company's name, followed by 'Private Limited', if it is available.

## Official sources

- Ministry of Corporate Affairs — MCA21 portal: https://www.mca.gov.in/
- Income Tax e-Filing portal: https://www.incometax.gov.in/
- GST portal: https://www.gst.gov.in/

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Canonical page: https://www.industax.com/services/business-changes/partnership-to-private-limited
Publisher: Indus Tax — CA-led tax and compliance firm (https://www.industax.com). Contact: info@industax.com, 9059139258.
This is general information, not advice for your specific facts.