Companies Act 2013

A Limited Liability Partnership Agreement serves as a pivotal contract binding two or more individuals or entities in the joint ownership of a Limited Liability Partnership (LLP). This legally binding document delineates the mutual rights and obligations of partners, crucially outlining the framework for their collaborative endeavors. While the LLP maintains its distinct legal identity through incorporation, the foundation of its governance is laid down in the LLP Agreement or LLP deed format in word. Therefore, preparing an accurate Limited Liability Partnership Agreement Format becomes imperative to adhere to legal standards and safeguard the interests of all parties. What is LLP Agreement? A Limited Liability Partnership, or LLP, is a type of corporate business structure that combines the core features of a partnership firm with the advantages of a limited company. Unlike a Sole Proprietorship business, many people can collaborate as partners to invest in and operate an LLP. In contrast to a Partnership firm, which does not have a separate legal identity from its partners, an LLP is incorporated as a separate legal entity and is liable to fulfill all its obligations in its name instead of the name of its partners. The liability of the partners in an LLP is distributed among them in the ratio of their capital contribution or as otherwise mentioned in the Limited Liability Partnership Agreement. Akin to a Limited Company, the individual liabilities of partners in an LLP are also limited. Moreover, the partners are protected against joint liability, that is the actions of one partner does not make the other partners liable as well. The LLP Agreement or limited liability partnership deed outlines the partner’s rights and obligations as well as the rights and obligations of the LLP. Additionally, it describes each partner’s ownership stake in the LLP, specifies how profits and losses are to be distributed among them, gets the LLP ready for typical business situations, and contains other crucial guidelines about how the LLP will pursue its activities. The LLP agreement word format is, therefore, essential as a basic fundamental document of the LLP. Important Clauses in the LLP Agreement Format The LLP Agreement word Format encompasses pivotal aspects governing partnerships within an LLP. It defines the relationship among partners, ensuring their eligibility for partnership, and outlining their extent of liability towards the business as well as other partners. Moreover, the LLP Agreement Format in word delves into the specifics of capital contributions, emphasizing the importance of adhering to agreed-upon terms for profit sharing. Also, it mandates meticulous accounting practices and annual audits, ensuring transparency and compliance with regulatory standards.  Partners and their Relationships The initial partners of the LLP are those who sign the LLP Agreement word format or llp deed format in word. According to the terms of the LLP Agreement, anyone who is eligible, can join as the partner of the LLP. It is made clear that only an individual or a corporation may be a partner in a limited liability partnership in accordance with section 5 of the LLP Act, 2008. For the purposes of the LLP Act of 2008, a HUF (Hindu Undivided Family) cannot be regarded as a corporate body. As a result, neither a HUF nor its Karta can be named a partner in an LLP. The Limited Liability Partnership agreement defines the relation that shall exist among the partners, and between the partners and the LLP. The degree of LLP’s and its Partners’ liability As a legal entity separate from its partners, an LLP is responsible for fulfilling its duties and liabilities, in its own name instead of the name of its partners. The liabilities of the LLP must be covered by assets of the LLP only. When a partner acts on behalf of the LLP without proper authorization, the LLP shall not be held accountable for his actions. LLP is responsible for any partner’s misconduct committed during the course of business or while acting under the LLP’s authority. A partner is not personally liable towards the LLP. The partner is himself responsible for his own improper action or omission, nevertheless. Contributions A partner’s obligation to contribute capital must follow the terms agreed by all partners and mentioned in the LLP Agreement word format or limited liability partnership deed. Apart from capital contribution, the contribution of the partners may also be with regards to movable or immovable property, tangible or intangible assets, and contracts of services rendered or to be rendered. The amount and type of each partner’s contribution must be stated in the LLP’s financial statements as well. A Chartered Accountant, Cost Accountant, or Approved Valuer must estimate the monetary value of the non-financial contribution for the purpose. A creditor of an LLP who offers credit based on a partner’s commitment to pay it off, may hold the partner accountable for the payment of that credit. Accounts and Audit LLP is obliged to maintain books of accounts on an accrual basis or a cash basis, following the double-entry system of accounting. The financial situation, specifics of money received and spent, the list of assets and liabilities, the cost of products acquired, inventories, work-in-progress, finished goods, and the cost of goods sold should all be disclosed in the books of accounts. The designated partner shall be able to verify from the books of accounts that the Statement of Account and Solvency is genuine. Such a Statement of Account and Solvency must be filed in Form 8 to the Registrar of Companies by the LLP, not later than October 30th, of the immediately succeeding financial year. The LLP’s accounts are also required to be annually audited. Adhering to these important LLP clauses while drafting an LLP Agreement can help in professional drafting of this crucial document. Navigate through each points thoroughly to gain proper clarity on clauses, rights and liability outlined in this agreement. It will be beneficial for the partners of an LLP to initiate a trusted bond among each other which will eventually help their joint venture to thrive in

FiLLiP (Form for Incorporation of Limited Liability Partnership) is an online application form that simplifies the incorporation process for LLPs under the LLP Act 2008. It combines name reservation and incorporation into a single form, enabling electronic document submission. FiLLiP also streamlines obtaining the Designated Partner Identification Number (DPIN) and Digital Signature Certificate (DSC) for the proposed LLP partners. Limited Liability Partnership (LLP) Limited Liability Partnership (LLP) is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. Since LLP contains elements of both ‘a corporate structure’ as well as a partnership firm structure’ LLP is called a hybrid between a company and a partnership. Low registration fees and easy maintenance make LLP a first choice for many of the small businesses in India. Limited Liability Partnership (Second Amendment) Rules, 2022 Limited Liability Partnership (Second Amendment) Rules, 2022 was declared on the 04th March 2022 and came into effect from the 1st April 2022. There are a few more important changes that have been made through LLP (Second Amendment) Rule, 2022, which are as follows: There can be 5 designated partners (without having DIN) at the time of Incorporation. (Earlier 2 was allowed) PAN & TAN will be allotted along with Certificate of Incorporation or Registration LLP incorporation has become web-based like the SPICE+. Form 8 (Statement of Solvency and Annual Return) will also include disclosures concerning Contingent Liability All LLP forms will be web-based including LLP Form -9  – Consent of Partners. Resultantly, all Designated Partners Digital Signatures will be required. Why Register LLP Under MCA? LLP is a separate legal entity from the partners. Every partner would sue the other for the condition which evolves. It has an uninterrupted existence that follows perpetual succession that is the partners may leave, however, the business stays. The term of the dissolution needs to be mutually agreed towards the company to dissolve Transferring the ownership of LLP is indeed easier. An individual would quickly be shown in as a designated partner and the ownership transferred to them LLPs that pose a capital amount of lower than 25 lakhs along with a turnover of less than 40 lakhs per year would not need any formal audits. The same build the registering as LLP advantageous towards the small businesses and startups An LLP has partners, who own and handle the business. The same varies from a private limited company whose directors might be different from shareholders. For this cause, VCs would not invest in the LLP framework LLP would own or take upon the property this is because it is considered as a juristic individual. The partners of LLP would not avail the property as theirs Steps to Incorporate LLP Name reservation:  The first step to incorporate a Limited liability partnership (LLP) is a reservation of the name of LLP. The applicant has to file eForm 1, for ascertaining availability and reservation of the name of an LLP business. Incorporate LLP: After reserving a name, the user has to file FiLLiP for incorporating a new Limited Liability Partnership (LLP). FiLLiP contains the details of LLP proposed to be incorporated, partners’/ designated partners’ details, and consent of the partners/ designated partners to act as partners/ designated partners. LLP Agreement: Execution of LLP Agreement is mandatory as per Section 23 of the Act. LLP Agreement is required to be filed with the registrar in eForm 3 within 30 days of incorporation of LLP. Format of a FiLLiP Name Reservation Section: In case LLP name is already approved through RUN-LLP webform, the user is required to mention the SRN of such approved form and validate the same with required details. Alternatively, you can also mention the proposed name in this section. Incorporation Details: This section is mandatory in case the LLP is already registered and the form is for conversion of LLP into another business entity. Details of business activity carried out by LLP on incorporation: It is especially required if the name reservation is also carried out through the FiLLiP. You need to provide details like the main industry or sector in which an LLP operates classified by a 5-digit NIC Code, a detailed description of the main division of industrial activity selected, etc. Particulars of Proposed Partners: The total no. of designated Partners (DPs) and Partners with or without DIN and their particulars like identity and address proofs. Total monetary value of contribution by partners in the LLP: Information regarding total contribution by all Partners/DPs i.e., the sum of contributions by all designated partners/partners. Attachments: This is where you provide relevant attachments like copy of regulatory approvals, Consent of the Partners (Form 9) and identity and address proofs. Filling FiLLip Form Under MCA for Online Registering an LLP Step 1: Login at MCA V3 portal with user name and password using this link Step 2: Select form “FiLLip Incorporation of LLP” from the list as shown below: Step 3: Fill the form and proceed to Form 9 (Consent to Act as Designated Partner) Step 4: Proceed to Form 17 (optional); Proceed to Form 18 (optional) Step 5: SRN will be generated on successful submission of the form. Step 6: Download the form and affix DSC. Easy Uploading the MCA Form on Govt Portal The last process is to upload the FiLLIp on the MCA portal. After successful generation of SRN on submission of form, an option to upload such form should be reflected on My Application in “Pending for Action” Tab. Users can click on the upload form and upload the DSC affixed PDF and proceed for payment. Please ensure that the form post affixing all the Digital Signatures is less than 6 MB.After successful generation of SRN on submission of form, an option to upload such form should be reflected on My Application in “Pending for Action” Tab. Users can click on the upload form and upload the DSC affixed PDF and proceed for payment. Save SRN Number & Execute Payment Once the form needs to submit, you would be automatically redirected to make the payment. Once

MCA form LLP 8 or statement of account and solvency composes a filing which should be furnished every year by all limited Liability Partnerships (LLPs) enrolled in India. No matter whatever the turnover of the LLP is, Form 8 must be filed with the Ministry of Corporate. Filing LLP Form 8 is an essential requirement for Limited Liability Partnerships (LLPs) to ensure compliance with regulatory bodies and maintain transparency in financial reporting. What is Form 8 for LLPs? Now, several questions will be floating in your mind such as what is Form 8 for LLP, late fee or penalty for filing Form 8 LLP? Form 8 in LLP is a statement of accounts and solvency that is applicable to all LLPs regardless of their turnover. Through this form, an LLP declares officially that its financial position is healthy enough and thus, it is capable enough to pay its liabilities and debts. Some other key particulars of the financial statement of the LLP are also disclosed in this form. LLPs need to submit these details through Form 8 within 30 days after the conclusion of the first half of the financial year. And hence, it is required to file LLP Form 8 by October 30th of each financial year.LLP Form 8 annual filings is one of the necessary compliances for LLPs that needs to be followed properly and timely to avoid consequences associated with late filing such as late filing fees or penalty for form 8 LLP. With the below post, you will get to know about some necessary facets of LLP Form including Form 8 LLP due date, late fee, or penalties!It’s necessary for the LLPs to submit these details through Form 8 within 30 days after the conclusion of the first half of the financial year. And hence, it is required to file LLP Form 8 by October 30th of each financial year. Failing to file Form 8 LLP can attract hefty late fees or penalty for form 8 LLP. Filing of Form 8 LLP Due Date The Filing of Form 8 LLP due date is 30th October of each financial year. Failing to file LLP Form 8 can impose a late fee or penalty of Rs. 100 per day. Along with filing LLP Form 8, LLPs are also required to file LLP Form 11 on or before May 30 of every financial year. Details Required for Filing Form 8 LLP Name and Address of the LLP LLPIN (Limited Liability Partnership Identification Number) Jurisdiction of Police Station for the registered address of the LLP Whether any charge is modified in favour of an Asset Reconstruction Company (ARC) or assignee If the turnover exceeds Rs 40 lakhs of the LLP  Whether the obligation of contribution exceeds Rs 25 lakhs Statement of Assets and Liabilities as of 31st March Statement of Income and Expenditure for the financial year Filing Fee for LLP Form & Penalty for Non-filing of MCA LLP Form 8 Filing Fees The LLP Form 8 filing fees vary according to the annual turnover of the LLPs. The table provided below gives you a better understanding of filing fees of Form 8 for different LLPs. Contribution of LLP Filing fees of Form 8 Up to INR 1 Lakhs INR 50 More than INR 1 Lakhs up to INR 5 Lakhs INR 100 More than INR 5 Lakhs up to INR 10 Lakhs INR 150 More than INR 10 Lakhs up to INR 25 Lakhs INR 200 More than INR 25 Lakhs up to INR 1 Crore INR 400 More than INR 1 Crore INR 600 Late fees or Penalty for Late Form 8 LLP Filing The table provided below gives you information about the late filing fees Form 8 of LLP as per the different delay period of filing this form. S.No Period of Delays Small LLPs Other than Small LLPs 1. Upto 15 days One time One time 2. More than 15 days and upto 30 days 2 times of normal filing fees 4 times of Normal Filing Fees 3. More than 30 days and upto 60 days 4 times of normal filing fees 8 times of Normal Filing Fees 4. More than 60 days and upto 90 days 6 times of normal filing fees 12 times of Normal Filing Fees 5. More than 90 days and upto 120 days 10 times of normal filing fees 20 times of Normal Filing Fees 6. More than 180 days and upto 360 days 15 times of normal filing fees 30 times of Normal Filing Fees 7. More than 360 days 25 times of normal filing fees 50 times of Normal Filing Fees Account and Solvency Statement MCA Form 8 is also called Statement of Account & Solvency. In Form 8, the LLP should furnish the information of the financial transactions within the fiscal year and the position to finish the fiscal year. Moreover to the fiscal part, the LLP should mention: Show that the turnover exceeds or less than Rs 40 lakhs.  Show that the LLP has previously furnished a statement showing the creation of charges or modification or satisfaction till the current fiscal year.  Show that the partners or authorised representatives have opted for effective handling and responsibility to maintain enough accounting records and preparation of accounts.  Attachments with LLP Form 8 The below-mentioned documents should be attached with Form 8: Mandatory: Disclosure under Micro, Small and Medium Enterprises Development Act, 2006. Towards the emergency liabilities happen, a statement of contingent liabilities needs to be attached. Any additional details would be given as an optional attachment.  Chartered Accountant and Partners Signature Form 8 is needed to be digitally signed by a minimum of two Designated Partners of LLP or Authorised Representatives of Foreign LLP. Moreover when the total turnover of the LLP is more than Rs 40 lakhs or partners’ responsibility for the contribution of more than Rs 25 lakh, then Form 8 must be certified by the auditor of the LLP/ FLLP. or, the digital signature of a

An LLP is the simplest form of Incorporated Business in India that is easy to start and lighter on the compliance aspect compared to the company form of organization. There is no hard and fast rule whether a business should begin as LLP or a Private Limited Company. As per the Law, there is no restriction on the kind of business you may do in the LLP form of business. However, it is presumed that the LLP form of business is very well suited for professionals such as Architects, Doctors, Engineers, CA, CS and Lawyers. Due to fewer compliance requirements, small businesses and startups prefer a Limited Liability Partnership (LLP) over a Private Limited. In the case of LLP, the statutory audit by CA is required only when the turnover of the LLP is more than 40 Lakhs or where the capital is over Rs. 25 Lakhs. In other words, when the LLP grows, the compliance requirement is similar to that of a Private Limited Company. Further, the LLP is investor-friendly, and for every small change in the ownership, the LLP agreement has to be changed. In contrast, the shareholding changes can be done easily in a Private Limited Company. For these reasons, many LLP converts as Private Limited Company;  Several businesses started in India as Limited Liability Partnership (LLP), may now wish to convert into a private limited company for more growth in business or for infusing equity capital. An LLP can be converted into a Pvt. Ltd. company as per the provisions contained in Section 366 of the Companies Act, 2013 and Company (Authorised to Register) Rules, 2014. However, there are various requirements which need to be satisfied for converting an LLP into a Private Limited Company, for instance, an LLP must have at least 7 partners, approval from all the partners is required, advertisement in newspaper is to be done in a local and a national newspaper, a No Objection Certificate (NOC) is required from the ROC  When is LLP the Best Choice? Limited Liability Partnership (LLP) is Ideal for service sectors, professionals, startups, and small businesses seeking Limited Liability, aiming to reduce annual compliance and audit costs. It is also suitable for those not looking to secure funds from Angel Investors or Venture Capital firms in the initial phase and not intending to issue shares to employees through ESOP When is a Private Limited Company the Best Choice? A private Limited Company is suitable for those investors who are big businesses, startups, and capital-intensive businesses and need funding from Venture Capitalists and Investors, need borrowings from banks, need foreign funding, and offer ESOPs to employees. What are the Benefits of Converting LLP into a Private Limited Company? Facilitated Growth: Converting to a private limited company supports business growth and expansion. Convenient Capital Raising: Private limited companies find it more convenient to attract investments from investors compared to LLPs. Equity can be offered to make them business partners, or debentures can be issued to secure debt capital. Flexible Share Issuance: Companies can increase capital at any time by issuing equity shares. Additionally, employee bonuses in the form of ESOPs can be allocated. Lower Taxation: Companies enjoy a lower income tax rate of 25%, as opposed to LLPs with a flat rate of 30%. Tax Benefits: The conversion from LLP to a company is exempt from capital gains tax. It also permits the carryforward of unabsorbed depreciation and losses. Potential for Public Listing: Private limited companies have the flexibility to be transformed into public limited companies in the future, facilitating expanded operations and the potential to raise capital from the public. Preservation of Goodwill: Converting from an LLP to a private limited company allows the business to retain its established brand name and goodwill. Enhanced Foreign Investments: Private limited companies generally encounter fewer hurdles in attracting investments from foreign investors compared to LLPs. Eligibility Requirement For Conversion of LLP to Company Any person who is not disqualified as per the act A company considered in the Companies Act 1956 or Companies Act 2013 An LLP considered under the LLP Act 2008 An LLP is considered as a foreign LLP A company considered as a foreign company Who is not Eligible for Becoming a Partner in LLP? An individual with a condition that he might be in no unsound mind and has been declared by competent authorities and jurisdiction. A minor/ HUF/ Partnership Firm   An AOP (Association of Persons) or BOI (Body of Individuals) An Artificial Judicial Person/ Corporate Sole A Co-operative Society registered under any law in the mentioned time period A body corporate which the Central Government might mention on the behalf by notification in the Official Gazette. Who Can Become a Member of LLP? Any person or a body corporate can become a member of an LLP. Who is not Capable of Becoming a Member of LLP? The person who cannot become a member of LLP is If he is found to be unsound by the Court of competent jurisdiction and if it is proved; If he comes under ‘undischarged insolvent; or If his application shows to be arbitrated as insolvent but the application is still on hold. Who is Appointed as a Designated Partner in LLP? An LLP stands for the Limited Liability Partnership and is ruled according to the rules of the LLP (Limited Liability Partnership) Act, 2008. As the years are passing, the LLP is becoming famous as compared to the ‘Private’ or a ‘Limited Company’ form of business and this is only possible because the nature of the LLP is easier and the compliances are lesser. Each and every LLP must have at least 2 partners and both of them must be designated partners who must participate in daily basis activities and works in the support of the partners. After the appointment, the partner or a designated partner can be removed, changed, or appointed. Who cannot be Appointed as a Designated Partner in LLP? Person who has been adjudged insolvent in the last five years. Person who has not clear payments to his

One of the major reasons why businesses choose the company form of business is because it allows greater accessibility to funds. A public company that has been incorporated under the Companies Act, 2013 is allowed to raise investments from the general public through different modes. Since a company raises funds from the public, it also becomes necessary that such a company be accountable to the public. Accordingly, to secure the interests of the investors in the company, the Companies Act, 2013 mandates the filing of a prospectus with the Registrar prior to raising funds.  A prospectus is a document issued by a company to invite deposits or subscriptions from the public by way of issuing securities of the company. It can be understood as a document or a booklet containing crucial information about the company and its securities for potential investors. Section 2(70) of the Companies Act, 2013 defines a prospectus as “prospectus means any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of body corporate” What is a Prospectus? A prospectus is a legal disclosure document that provides information about an investment offering to the public, and that is required to be filed with the Securities and Exchange Commission (SEC) or local regulator. The prospectus contains information about the company, its management team, recent financial performance,  From the perspective of the issuer  prospectus is a document that provides all the essential information about the company at the time of raising an investment from the public. It can be understood as an invitation to offer the securities of the company. The public intending to invest in the company can make an offer above the offered price but within the price band. It is upon the company to allot shares to the public in the manner it deems fit. Every time a company has to raise an investment from the public, it is the duty of the company to inform the public about its financial position and the purpose of the investment. A prospectus is the first document through which a company publicises or discloses its financial and other relevant information. Section 28(2) of the Companies Act, 2013 provides that any document through which an offer for sale is made to the public shall be deemed a prospectus. It is pertinent to note that the document has to be issued to the public and not a particular set of persons. Even if an advertisement is made in a newspaper regarding certain shares left for purchase by the company, it shall constitute a prospectus, as has been held by the Hon’ble Calcutta High Court in Pramatha Nath Sanyal v. Kali Kumar Dutt (1924). From the perspective of the Investor In order to be able to make an informed decision regarding an investment, an investor must have access to all the information about a company before investing in it. Institutional investors might receive such information without much trouble. However, it is the retail investors whose interest might be compromised if such information is not provided in due course. Thus, a prospectus becomes the most crucial document for any investor intending to invest in a company. This is also the reason why the company law mandates the filing of a prospectus every time before raising a public investment. It can also be safe to infer here that issuing a prospectus is one of the means of ensuring good corporate governance practices in a company as it encourages transparency, accountability and responsibility. Essentials for a document to be called as a prospectus Invitation to the Public – One of the most important points that one must remember is that a prospectus is an invitation to offer rather than an offer itself. This means that a company makes an open declaration to the public at large that some of its securities are available for subscription. A document shall be deemed to be an invitation to the public only if it is open for any person to subscribe, though there may be a possibility that ultimately the securities may not be issued to him owing to oversubscription or any other disqualification. Invitation by the company – The prospectus must be issued by the company itself that wishes to raise the funds. Even if all the requisite disclosures are made available by the public by some other authority, that would not satisfy the criteria for making the invitation. However, an entity, on behalf of the company or on the authorisation of the company, may follow the stipulated process in order to make an invitation to offer to the public. Hence, an invitation to offer must be made by the company itself or on behalf of the company by some other authority authorised by the company. Nature of document and particulars therein – A prospectus shall be in the nature of an invitation to offer, allowing subscription to the securities of the company. Any document merely disclosing the details of the securities shall not be considered a prospectus. It must fulfil all the required stipulations that have been provided under the Companies Act, which have been discussed in the later section of the article. Information regarding securities of the company – A prospectus is required to contain all the details regarding the securities. The prospectus must specify the nature of securities, whether equity-based or debt-based. It must also specify the category as to whether it is an equity or preference share, debenture, bond, warrant, etc. It must specify the number of securities available for subscription. It must also provide for other particulars, such as redemption, rate of interest, etc., as may be applicable to the category of securities. Types of prospectus under Company Law Shelf prospectus- Drafting a prospectus is a cumbersome process as it requires a number of disclosures and information to be passed on to the investor. It may also

Businesses often evolve and grow over time, and with growth comes the need for a more structured and organized legal entity. Many partnership firms eventually contemplate converting into a private limited company due to the advantages it offers in terms of limited liability, easier access to capital, and increased credibility. Overview of Conversion of Partnership Firm into a Private Limited Company Conversion of a partnership firm into a private limited company is always very advantageous. The company members enjoy benefits like perpetual succession and limited liability. Section 366 of the Companies Act 2013 provides for the entities eligible to be registered under this Act. As per this section, the conversion of a partnership firm into a limited company is possible. The section also states that you can convert any cooperative society, LLP or any other type of business into a private limited company. Benefits of Conversion of Partnership firm into a private limited company With the conversion of a partnership firm into LLP income tax, the shareholders are liable only to a considerable extent. Private limited company registration makes it easier for the companies to raise funds as there are no limitations on the number of stockholders. Make management and shareholding changes and revisions easily without disturbing the company policies. A private limited company has a distinct legal entity. The outsiders can never take control of a private limited company. Obligations and assets are transferred. No capital gain taxes are levied on property transfer from one company to the other. Constant succession is also enjoyed with a private limited company. Need of Converting a Partnership Firm into a Private Limited Company Limited Liability:  One of the primary advantages of a private limited company is that its members’ liability is limited to the extent of their shareholdings. In a partnership firm, partners are personally liable for the firm’s debts, while in a private limited company, personal assets remain protected. Easier Capital Raising:  Private limited companies have an advantage when it comes to raising capital. They can issue shares to raise funds from investors, which isn’t possible in a partnership firm. Perpetual Existence:  A private limited company enjoys perpetual existence. It continues to exist even if the members or directors change. Partnerships typically dissolve or require formal reconstitution when a partner exits. Improved Credibility:  Private limited companies often have a higher level of credibility in the business world. They are seen as more stable and trustworthy, which can help attract clients and investors. Tax Benefits:  Private limited companies might offer tax advantages, depending on the jurisdiction and the nature of the business. Transfer of Ownership:  In a private limited company, the transfer of ownership is relatively easy, as it involves the transfer of shares. Partnerships typically require more complex procedures. Essentials for Converting the Partnership firm into a Private Limited Company Section 366 of the Companies Act 2013 puts down the essentials for the conversion of a partnership firm into a private limited company stamp. These include: The partnership deed needs to be registered with the Registrar of companies. There should be at least two shareholders or directors to convert a partnership firm into a private limited company. Secured creditors of a partnership firm must obtain the No Objection Certificate before conversion into a private limited company. The partnership firm should also get an exclusive name while ensuring that the name ends with Pvt. Ltd. A contribution of minimum capital is necessary. The partnership firm looking to convert into a private limited company should also have a registered office. Once the conversion procedure is complete, the private limited company should form its AOA and MOA for Incorporation. How to convert a Partnership Firm into a Private Limited Company? Obtain Partners’ Consent: All the partners of the existing partnership firm need to agree to the conversion process. A resolution must be passed, showing unanimous consent to the transition. Register a Private Limited Company: You need to incorporate a new private limited company with the desired name. The name should ideally reflect the business’s nature and must be unique and not in use by any other entity in your jurisdiction. MOA and AOA Drafting: Draft a Memorandum of Association (MOA) and Articles of Association (AOA) for the new private limited company. These documents specify the company’s objectives, capital structure, and internal regulations. Legal assistance is recommended to ensure these documents adhere to the legal requirements. Share Allotment: Decide on the distribution of shares among the partners. The shareholding pattern should reflect the partnership’s ownership structure. Value of Assets and Liabilities: A statement of assets and liabilities of the partnership firm must be prepared, and the values transferred to the new private limited company’s books. An auditor can help in this process. Obtain NOC and Approvals: Obtain a No Objection Certificate (NOC) from all existing creditors and approval from statutory authorities if required. This ensures a smooth transition without legal complications. File Conversion Documents: Prepare the necessary documentation for conversion process and submit it to the relevant regulatory authorities. In India, for example, this involves filing form URC-1 with the Registrar of Companies. Paying Stamp Duty: Stamp duty might be applicable on various documents, such as the MOA, AOA, and the partnership deed. Ensure all stamp duties are paid as per the local regulations. Publication of Notice: In some jurisdictions, you may be required to publish a notice about the conversion process in a local newspaper. Compliance with Taxation Laws: Ensure that all tax liabilities are settled, and the necessary tax registrations and compliances are met. Seek professional advice to manage the tax aspects effectively. Business Name Change: After obtaining the Certificate of Incorporation for the new private limited company, the name of the partnership firm should be updated to reflect the new entity. This includes changing the name on all legal documents and licenses. Challenges and Considerations Cost: The conversion process can be costly, involving legal fees, registration fees, and stamp duties. It’s essential to budget for these expenses. Complexity: The process can be complex and time-consuming, involving legal, financial, and administrative aspects. Professional guidance is often necessary.

Securities are issued by companies to acquire capital from investors. A security is a negotiable instrument issued by a company or a government which has a certain monetary value to acquire capital from the persons who invest in it. There are three types of securities in company law – a) equity securities which give the equity share value as a security to the person who is investing; b) derivatives securities which give value through another financial instrument or promise or contract and, c) the debt securities which gives the creditor a value through an instrument which comes with a charge on the assets provided as a collateral or security.  Meaning of debentures according to Companies Act, 2013 A debenture is a type of debt instrument which is issued by a company to raise capital. Debenture is a long-term debt instrument which may be in the form of a bond or a loan which is secured by the charge upon the assets which have been provided as securities. Debentures have a fixed rate of interest and other characteristics which are described in detail later in the article. According to Section 2(30) of the Companies Act, 2013 – the term “debenture” includes debenture stock, bonds, or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not. The definition in the Companies Act, 2013 does not mandate the creation of a charge. So, a debenture can be issued without creating a charge on the company’s assets. For example, unsecured debentures are issued without creating a charge, where the company is not required to provide any property or asset as a security for the debt amount acquired by issuing the debentures. Types of debentures Debentures based on security Debentures based on tenure Debentures based on conversion Debentures based on registration Debenture based on security- Usually, the debenture-holder has less or no risk for the amount he has lent to the company to get the debentures since he has securities to charge, upon the default of payment by the company. The debentures based on security are of two types – secured and unsecured debentures. Secured debentures- Secured debentures are also known as mortgage debentures. They are a type of debenture that are secured by a charge either fixed, or floating, on a company’s assets. The holder of this type of debenture has the right to recover the principal amount and the interest from the assets which have been given as securities. Unsecured debentures- In this type of debenture, the companies are not required to pledge any of their properties or assets as collateral for the debt amount. Since the unsecured debentures do not require any assets to be used as a security, the lender usually is at high risk of losing his principal amount in case the company defaults. This type of debenture has a high rate of interest. Debentures based on tenure- Redemption of the debenture occurs when on the maturity date, the company pays back the principal amount along with the interest and releases its properties or assets from the charge given to the debenture-holder. It is divided into two types – redeemable and irredeemable debentures. Redeemable debentures- Most of the debentures are redeemable, meaning on the expiry of the maturity date, the debenture is redeemed by the company by paying back the principal amount with interest to the debenture-holder and releasing its assets from charge. Perpetual or Irredeemable debentures- If a debenture does not contain any clause as to the payment of the principal amount by the company and redeeming the debenture, then it is known as a perpetual or irredeemable debenture. This type of debentures, unlike redeemable debentures, does not cease on the maturity date. Debentures based on conversion- The company has the right to convert the debentures into equity shares. There are two types of conversion of debentures – convertible and non-convertible debentures. Convertible debentures- The company issuing debentures has the right to convert these types of debentures into equity shares. So the debenture-holder who was just a creditor to the company becomes a member of the company and enjoys ownership of the company to the extent to which he has the equity shares of the company. Non-convertible debentures- This type of debenture cannot be converted into equity shares of the company. So the debentures will always be redeemed and will never have the characteristics of equity shares of the company.  Debentures based on registration- As most of the important deeds and instruments of a company are usually registered in the company, debentures are no exception. There are two types – registered and unregistered debentures. Registered debentures- If debentures are issued by the company, the company is required to maintain a register of its debenture-holders as Section 88 of the Companies Act, 2013 provides that every company shall register the holders of its debentures. Both, the debenture certificate and the company’s register, shall have the name of the debenture holder. Unregistered or Bearer debentures  The company can avoid the registration of the debenture-holders if it issues the debentures to the bearer. Such types of debentures are transferable, like negotiable instruments, by way of simple delivery and are also called debentures payable to the bearer. Why are debentures issued Retained Earnings – a leftover profit after paying all the direct and indirect costs, all the interests to the lenders and the payment of dividends to the shareholders. The retained earnings of the company are used for further investment in the company. Equity Capital – It is a source of capital generated by giving out the equity of a certain part of ownership to the person who invests in the company. For example, shares. Debt Capital – It is a source of capital generated through debt which is lent by banks and other lenders who get a fixed rate of interest. For example, loans and debentures. Advantages of debentures Advantages of debentures to the company  Secure way of raising money: Debentures are one of the most effective