Convert Partnership Firm to Private Limited Company
You can convert a partnership firm to a private limited company without closing the business. Under Section 366 of the Companies Act, 2013, a registered firm publishes a Form URC-2 notice, waits 21 clear days for objections, then files Form URC-1 on the MCA V3 portal. We handle every step, including the capital gains and GST checks.
What it is
Converting a partnership firm into a private limited company means the same business, with the same owners, registers under the Companies Act, 2013. The partners become shareholders. Everything the firm owns and owes passes to the company, and the firm is then dissolved with the Registrar of Firms. Nothing is sold. No business is wound up.
The legal route is Section 366, in Part I of Chapter XXI of the Act. Its Explanation counts a partnership firm as a “company” that may register under the Act, and the Companies (Authorised to Register) Rules, 2014 set out the procedure. The application is Form URC-1, filed with the SPICe+ incorporation forms on the MCA V3 portal. Comparing structures first? See what private limited company registration involves.
Who it applies to
Start with a registered firm of two or more partners
The company needs at least two members and two directors. With fewer than seven members, Rule 3(1) makes it a private company. If your firm never completed registration with the Registrar of Firms, talk to us first.
Bring in an investor who wants shares
A firm has capital accounts, not shares. Say a Faridabad auto-parts firm finds an investor ready to take a minority stake: the investor wants shares, and the firm has none to give. Converting solves that.
Cap the partners’ personal liability
Under Section 25 of the Indian Partnership Act, 1932, every partner is liable, jointly and severally, for the firm’s acts. A shareholder’s liability is limited to any amount unpaid on their shares.
Why it matters
Keep trading through the change
Under Sections 368 to 370, the firm’s property vests in the company, its debts and obligations stay alive, and pending cases continue.
Convert without a capital gains bill
Moving assets from the firm to the company is not taxed as a capital gain if four conditions are met, and one of them is kept for five years.
Opt for the 22% company tax rate
A firm pays 30%, plus cess and any surcharge. A domestic company can opt for the 22% concessional rate, about 25.17% with surcharge and cess, if it gives up certain deductions.
Documents required
Pull from the firm’s records
- Partnership deed, with every earlier version if it was revised
- Registrar of Firms certificate of registration
- Latest income tax return of the firm
- Auditor-certified statement of accounts, no more than 15 days old, plus last year’s audited financial statements, where applicable
Collect from every partner
- Assent to the conversion, given at a partners’ meeting
- Undertaking from all partners to file the firm’s dissolution papers with the Registrar of Firms
- List of partners with the shares each will hold
- PAN, identity proof and address proof
Prepare for the new company
- Proposed memorandum and articles of association
- DIN, DSC and consent of each proposed director, with the lists verified by at least two of them
- Registered office proof
- URC-2 newspaper clippings and proof of the notice served on the Registrar of Firms
How it works
Check the deed, accounts and tax conditions
We read every deed and reconcile the capital accounts, because the tax exemption needs shares in the same ratio as those accounts.
Get three-fourths assent at a partners’ meeting
At least three-fourths of the partners present must assent. We draft the meeting papers and collect each consent in writing.
Reserve the name through SPICe+ Part A
In practice, the company usually keeps the firm’s name with “Private Limited” added. Directors without a DSC or DIN get one now.
Publish Form URC-2 and serve the Registrar of Firms
The notice runs in an English and a vernacular-language newspaper in your district, and a copy goes to the Registrar of Firms. Objections can be made for 21 clear days.
File Form URC-1 with SPICe+ Part B
We file URC-1 with SPICe+ Part B, the e-MoA (INC-33), the e-AoA (INC-34) and AGILE-PRO-S, with the certified accounts and consents attached.
Collect the certificate and close the firm
The Registrar issues the certificate of incorporation with the company’s PAN and TAN. We then send the Registrar of Firms its 15-day intimation and move GST and banking across.
Timelines
Wait 21 clear days after the URC-2 notice
Objections can be raised within 21 clear days of publication. The Registrar then weighs those received within 30 days of publication.
Use accounts no more than 15 days old
The auditor-certified statement of accounts must be prepared not later than 15 days before the date you seek registration.
Tell the Registrar of Firms within 15 days
After registration, Rule 5 gives 15 days to send the Registrar of Firms an intimation with the firm’s dissolution papers. The board also appoints the first auditor within 30 days.
Income tax and GST on conversion
Section 47(xiii) of the Income-tax Act, 1961 treats a company taking over a firm’s business as no transfer, so no capital gains arise. For conversions from 1 April 2026, the same rule sits in Section 70(1)(zd) of the Income-tax Act, 2025. All four conditions must hold:
- all the firm’s business assets and liabilities, immediately before the conversion, become the company’s;
- every partner becomes a shareholder in the same proportion as their capital account stood on the date of conversion;
- no partner receives any consideration or benefit, directly or indirectly, other than shares;
- the partners together hold at least 50% of the voting power, and keep it for five years.
Here is the catch: one slip undoes it. Take a three-partner garment-export firm in Faridabad where one partner wants cash instead of shares. That payout breaks the third condition. The fourth can break later: convert in October 2026, and the partners’ combined stake must stay at 50% or more until October 2031. Either way, Section 47A(3) of the 1961 Act (Section 71 of the 2025 Act) taxes the exempted gain in the company’s hands for the year of the breach.
On GST, the company has a new PAN, so it needs its own GST registration. Under Section 18(3) of the CGST Act and Rule 41, the firm’s unutilised input tax credit moves across through Form GST ITC-02, with a practising chartered accountant’s or cost accountant’s certificate. The firm’s registration is then cancelled. Its final return, GSTR-10, is due within three months of the cancellation date or order, whichever is later.
Registrations to update after conversion
| Registration | What happens |
|---|---|
| GST | Fresh registration for the company; credit moved through ITC-02; firm’s registration cancelled in Form GST REG-16 |
| Bank accounts | New current account in the company’s name |
| Udyam | Fresh registration with the company’s PAN |
| Import Export Code | Fresh IEC on the DGFT portal |
| Trademarks | Assigned to the company through Form TM-P |
| FSSAI and other licences | Fresh licence or registration in the company’s name |
What happens if you skip a step
Miss the three-fourths assent, and the application falls short
Where partners’ liability is unlimited, Section 366(2) needs the assent of at least three-fourths of the partners present. A bare majority is not enough.
Leave an objection unanswered, and registration can be refused
A creditor, the Registrar of Firms or anyone else can object during the notice period, and the Registrar decides only once objections are addressed.
Break a tax condition, and the gain turns taxable
A cash payout to one partner breaks it, and so does the partners’ stake dropping below 50% within five years. The exempted gain is then taxed in the company’s hands.
Frequently asked questions
Can a partnership firm be converted into a private limited company?
Yes. Section 366 of the Companies Act, 2013 lets a partnership firm register as a company under the Companies (Authorised to Register) Rules, 2014. The firm publishes Form URC-2, waits 21 clear days for objections, and files Form URC-1 with the SPICe+ forms on the MCA V3 portal. The partners become shareholders, and the business keeps trading while the paperwork moves.
Does the firm need to be registered with the Registrar of Firms?
The process is built around a registered firm. Rule 3 asks for the Registrar of Firms’ certificate “in case the firm is registered”, and Rule 5 needs a notice to that Registrar and an intimation within 15 days of the company’s registration. If your firm was never registered, tell us at the start, and we will check what your case needs.
How many partners must agree to the conversion?
Not less than three-fourths of the partners present at the meeting. A simple majority is the normal rule under Section 366(2), but where liability is unlimited, as in a firm, three-fourths of those present must assent. For the tax exemption, every partner must also become a shareholder. We draft the meeting papers and collect each assent in writing.
How many partners or directors does the company need?
Two members and two directors, at minimum. Rule 3(1) needs two or more members and makes an entity with fewer than seven members register as a private company. Section 149(1)(a) sets two directors for a private company. A two-partner firm can convert with the same two people as shareholders and directors, with nobody new to find.
Is converting a partnership firm into a company tax-free?
Yes, if four conditions hold. Section 47(xiii) of the Income-tax Act, 1961, now Section 70(1)(zd) of the 2025 Act, treats it as no transfer when all business assets and liabilities pass to the company, partners get only shares, in their capital-account ratio, and they keep at least 50% of the voting power for five years. We test each condition before the conversion date.
What happens to the firm’s GST registration and input tax credit?
The company takes a fresh GST registration, because it has a new PAN. The firm’s unutilised input tax credit then moves across through Form GST ITC-02 under Section 18(3) of the CGST Act and Rule 41. After that, the firm’s registration is cancelled and its final return, GSTR-10, filed. Done in this order, the credit follows the business.
What happens to the firm’s property, loans and contracts?
They pass to the company by law. Section 368 vests the firm’s movable and immovable property in the company, Section 369 keeps its debts and obligations alive, and Section 370 lets pending cases continue. You still update title records and loan papers in the company’s name; we give you a checklist so nothing is missed.
How long does the conversion take?
Plan for about 30 to 45 working days. The fixed part is the 21 clear days after the Form URC-2 notice; the Registrar then considers objections received within 30 days of publication. Because the certified accounts must be no more than 15 days old, we time the audit work around the filing date. Clean deeds and quick signatures keep it at the short end.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
Ready to begin?
Send us your partnership deed, latest accounts and list of partners, and we will come back with a written conversion plan.