The two ways to become a company
There are two routes, and they are not the same transaction.
| Route | What happens | When it suits |
|---|---|---|
| Section 366 conversion | The existing firm registers itself as a company. Its business, assets and liabilities pass into the company on registration, and the partners become the shareholders | The usual choice: one business, one history, all partners continuing |
| New company plus business transfer | You incorporate a fresh private limited company and then sell or transfer the business to it under an agreement | Where only part of the business is moving, where a partner is leaving, or where the firm has to survive for another purpose |
The second route is a transfer between two persons, so it can bring capital gains, stamp duty on the instrument and fresh registrations with it, and it needs a valuation and a business transfer agreement. The first route is the one this page is about. Which fits is a question to settle in the first call, not after the name is reserved.
What the firm must have in place
Before anything is filed:
- At least two partners who will become the shareholders and, between them, provide at least two directors. At least one director must be resident in India.
- The partnership deed, with every supplementary deed since the firm started. Gaps in the chain are the most common cause of delay.
- A statement of assets and liabilities of the firm, certified by a chartered accountant, prepared not more than 15 days before the application.
- Written consent of the partners to the conversion, and the shareholding each will hold.
- No objection from the secured creditors. A bank with a charge or a mortgage has to say yes in writing.
- The firm's latest income-tax return.
- A name that is available at the MCA. The firm's own name can usually be carried over with "Private Limited" added, if it is free.
A firm registered with the Registrar of Firms hands over its registration certificate as well. An unregistered firm can also convert, so if you never registered the firm under the Indian Partnership Act, 1932, that alone is not a blocker. See partnership firm registration for what registration does and does not give you, and partnership deed for the deed itself.
The section 366 route, step by step
- Review and tax planning. We read the deed chain, the balance sheet and the partners' capital accounts, and confirm the section 47(xiii) conditions can be met with the shareholding you have in mind.
- Name reservation. SPICe+ Part A for the proposed company name.
- Publish the URC-2 notice. Two newspapers, one English and one in the vernacular language of the district, inviting objections.
- Wait 21 days. The window is mandatory. Nothing is filed until it closes.
- Prepare the documents. Memorandum and articles, partners' consents, lists of members and directors, the CA-certified statement of accounts, the creditors' no objection, affidavits and DIR-2 consents.
- File URC-1 with SPICe+ Part B. The registration application under Part XXI goes in with the incorporation forms, including e-MoA and e-AoA.
- Certificate of incorporation. The Registrar registers the firm as a company and issues the certificate, with the CIN, and the company's PAN and TAN follow from the same application.
- Close out the firm's records with the Registrar of Firms where the firm was registered, and move the registrations covered below.
The URC-2 advertisement and the 21 days
The advertisement is not a formality and the 21 days cannot be compressed. Plan the whole timetable backwards from it.
Two practical points. Publish in the district where the firm's principal place of business is, in both languages, and keep the original newspaper copies, because they are an attachment to URC-1. And use the wait productively: the creditors' no objection and the CA-certified statement of accounts both take about that long, and the statement has to be dated within 15 days of the application, so it is prepared at the end of the window, not the start.
Documents for URC-1
| Document | Notes |
|---|---|
| Partnership deed and all supplementary deeds | The full chain, from the original deed onwards |
| Firm's registration certificate | Where the firm is registered with the Registrar of Firms |
| List of partners becoming members, with shareholding | Proportions must match the capital accounts if you want the tax exemption |
| List of proposed directors, with DIR-2 consents | Minimum two directors, at least one resident in India |
| Statement of assets and liabilities, certified by a CA | Not more than 15 days before the application |
| No objection from secured creditors | In writing, from each of them |
| Written consent of the partners | To the conversion and to the shareholding |
| Latest income-tax return of the firm | As filed |
| Affidavits from the partners | On the correctness of the particulars and the consents |
| Copies of the URC-2 advertisement | Both newspapers, originals kept on file |
| Memorandum and articles of the proposed company | e-MoA and e-AoA in the SPICe+ set |
Is the conversion taxable?
It does not have to be. Section 47(xiii) of the Income-tax Act, 1961 takes the transfer of a firm's capital assets to a company on succession outside the definition of a taxable transfer, provided a set of conditions is met. Miss one, and the conversion is a transfer like any other.
For FY 2025-26 (AY 2026-27) the 1961 Act applies. From Tax Year 2026-27 the Income-tax Act, 2025 is in force, and we confirm the corresponding provision before signing off on a conversion that straddles the two years.
The section 47(xiii) conditions
- All assets and liabilities of the firm immediately before the succession become the assets and liabilities of the company.
- All the partners of the firm become the shareholders of the company, in the same proportion as their capital accounts stood in the books of the firm on the date of succession.
- The partners receive no consideration or benefit, directly or indirectly, other than the allotment of shares in the company.
- The partners' aggregate shareholding is not less than 50% of the total voting power in the company, and it continues to be so for five years from the date of succession.
Read the second condition twice. It is capital accounts, not the profit sharing ratio, and the two are often different in a firm that has run for years. That single point is what the tax planning at step 1 is for: if the partners want a different shareholding, the price of it is the exemption.
What can undo the exemption later
The five year condition is a live obligation, not a box ticked at conversion. If the former partners' holding drops below 50% of the voting power inside five years, whether by a share transfer, a new issue to an investor or a partner's exit, the exemption that was given at conversion can be withdrawn and brought to tax.
So if a funding round is planned within five years, model it now. An issue of shares to an investor dilutes everybody, and the arithmetic has to leave the former partners above 50% of the voting power until the five years are up. See increase in authorised capital and shareholders agreement for the instruments that usually cause the drop.
Stamp duty on the assets
Stamp duty is state law, and there is no central rate.
On a section 366 conversion the firm's property passes into the company on registration rather than under a sale deed, and some advisers treat that as taking stamp duty out of the picture altogether. We do not state that as a general rule, because the position depends on your State's Stamp Act and on what the firm owns, and immovable property is where the argument actually happens. What we do is check the State position and the property list before you commit to a route, and tell you what the exposure is.
Separately, the memorandum and articles of the new company carry their own state stamp duty at incorporation, which is small and which we show in the quote.
What happens to PAN, GST, licences and contracts
The company is a new legal person with a new PAN, so the registrations that hang off the firm's PAN do not simply carry over.
| Item | Position |
|---|---|
| PAN | New PAN for the company, applied for with the incorporation forms |
| TAN | New TAN, applied for the same way. See TAN registration |
| GST registration | The firm's GSTIN is tied to the firm's PAN. The company needs its own registration, and the firm's registration is dealt with separately. See GST registration and GST cancellation |
| Udyam registration | Fresh registration in the company's name. See Udyam registration |
| Trade licence, shop and establishment, FSSAI, IEC | Each is held in the firm's name and needs transfer or fresh application. See trade licence, shop and establishment, FSSAI registration, IEC |
| Bank accounts | New accounts in the company's name, with the board resolution |
| Contracts, employees and loans | The business passes to the company on registration, but tell your counterparties and your lender in writing, and check whether any contract needs a formal novation |
| Income-tax returns | The firm files for the period up to conversion; the company files from there |
This list is the part of the job that clients underestimate, and the reason we hand over a dated checklist rather than only a certificate of incorporation.
What changes in tax and compliance
| Point | Partnership firm | Private limited company |
|---|---|---|
| Income-tax rate, FY 2025-26 | 30%, plus 12% surcharge above ₹1 crore, plus 4% cess | 25% where FY 2023-24 turnover was up to ₹400 crore, otherwise 30%, with surcharge and cess; or 22% under section 115BAA, an effective 25.168% |
| Partner or shareholder | A partner's share of the firm's profit is exempt under section 10(2A) | A shareholder's dividend is taxed in the shareholder's hands |
| Pay to the owners | Partner remuneration and interest are deductible within the section 40(b) limits | Director remuneration is an expense, subject to the company's own approvals |
| Return | ITR-5 | ITR-6 |
| Annual filings | State Registrar of Firms records only | AOC-4 and MGT-7 or MGT-7A with the ROC, plus event filings. See annual ROC filing |
| Audit | Tax audit where the section 44AB thresholds are crossed | Statutory audit every year, plus tax audit where applicable. See tax audit |
| Liability | Partners are jointly and severally liable | Limited to the unpaid amount on the shares |
| Outside investment | Not through shares | Equity, preference shares and ESOPs available |
The compliance load goes up. So does what the business can do: raise equity, give ESOPs, tender where a company is required, and separate ownership from management.
Government fees for the conversion
| Item | Government fee |
|---|---|
| Name reservation, SPICe+ Part A | ₹1,000 per application |
| Incorporation fee, SPICe+ Part B | Nil where the authorised share capital is ₹15,00,000 or less |
| PAN for the company | ₹66 |
| TAN for the company | ₹65 |
| Stamp duty on e-MoA and e-AoA | State-specific. Delhi: INC-32 ₹10, MoA ₹200, AoA 0.15% of authorised capital up to a maximum of ₹25,00,000. West Bengal: INC-32 ₹10, MoA ₹60, AoA ₹300 |
| URC-1 filing fee | Computed on the MCA portal at filing. We confirm it in your quote before we file |
| URC-2 newspaper advertisement | Charged by the newspapers at their published rates |
| Stamp duty on the firm's assets | State-specific, checked before filing. See above |
Fees above the ₹15,00,000 authorised capital mark are computed on a slab basis on the MCA portal, and we confirm the figure before filing rather than publish an estimate.
Our fee for a partnership to private limited conversion
Fee on quote after a free review. The review is the tax test and the deed chain. Both decide how much work the conversion is.
| Item | Amount |
|---|---|
| Professional fee: section 366 conversion, end to end | Fee on quote after a free review |
| For comparison: a fresh private limited incorporation | From ₹1,499. See private limited company registration |
| For comparison: registering a new partnership firm | From ₹1,499. See partnership firm registration |
| Government fees | As in the table above, at actuals |
Professional fees exclude GST at 18%. Government fees, where they apply, are paid at actuals to the department and are shown separately. Fees verified on 27 September 2026.
What we do
- Tax test first. We reconcile the capital accounts and set the shareholding that satisfies section 47(xiii), then show you the five year constraint in writing.
- Deed chain. We assemble the original and every supplementary deed, and flag gaps early.
- Name and notice. SPICe+ Part A for the name, then the URC-2 advertisement in both newspapers.
- Consents. We prepare the partners' consents, the affidavits and the request your secured creditors need, and follow up on the bank.
- Accounts. We time the CA-certified statement of assets and liabilities so it is inside the 15 day window on the filing date.
- File. URC-1 with SPICe+ Part B, e-MoA and e-AoA, with the DSCs of the subscribers and directors.
- Hand over. Certificate of incorporation, PAN, TAN, and a dated checklist for GST, licences, bank, Udyam and the Registrar of Firms.
What we need from you
- Original partnership deed and every supplementary deed
- Firm's registration certificate, if the firm is registered
- Balance sheet and profit and loss account for the last three years, with the partners' capital accounts
- Latest income-tax return of the firm
- List of assets, with details of any immovable property and its State
- List of creditors, marking the secured ones, with sanction letters and charge details
- KYC of all partners, and DIN where a partner already has one
- Proposed name, shareholding and directors
- Details of licences and registrations held in the firm's name
- Any investment or exit plan for the next five years, because it changes the tax planning
Five mistakes we see
- Allotting shares in the profit sharing ratio. Section 47(xiii) asks for the proportion of the capital accounts, which is usually different.
- Starting the filing before the notice. The URC-2 advertisement and its 21 days come first, and cannot be shortened.
- A broken deed chain. A missing supplementary deed from six years ago stops the application.
- Forgetting the five year condition. A funding round or a partner exit inside five years can undo the exemption.
- Assuming the registrations travel. GST, Udyam, licences and bank accounts all sit on the firm's PAN and have to be redone.