The\nconversion of business takes place in domestic entities. A Statutory conversion\nis the most efficient way to change one entity from another entity.<\/p>\n\n\n\n
What are the ways of conversion of Business Entity?<\/h2>\n\n\n\n
There are different ways of conversion of Business Entity mentioned below-<\/p>\n\n\n\n
![\"conversion](\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/10\/image-3.png\")
<\/figure><\/div>\n\n\n\n- Dissolution of the original entity\nand Formation of the new entity<\/strong><\/strong><\/li><\/ul>\n\n\n\n
This\nis the most time taking, complicated and expensive way to change entity forms.\nAs the procedure involves dissolution, and dissolving a business entity can be\ncomplex, and further, a new entity is formed. For the same, the agreements have\nto be entered into to transfer the original entity’s assets and liabilities to\nthe newly formed entity.<\/p>\n\n\n\n
Under\nthis method, the original entity gets dissolved, and a new entity is formed.<\/p>\n\n\n\n
- Merge\nover\/Inter-entity merger<\/strong><\/li><\/ul>\n\n\n\n
Merge over\/Inter-entity\nmerger is the method where the new entity type is formed, and the old entity\ntype is merged into the new one. As a matter of statute, the significance of a\nmerger over dissolution\/formation is that the former entity will cease to\nexist, its assets and liabilities will vest in the later (new) entity and its\nowners will become owners of the new entity.<\/p>\n\n\n\n
- Statutory\nConversion<\/strong><\/li><\/ul>\n\n\n\n
Statutory conversion is the\nleast complex expensive way to change business entity forms, and a document is\nfiled with the authority to change from one entity form to another. In\nstatutory conversion, there is no need to form a new entity, and similar to a\nmerger, the assets and liabilities, and ownership interests are transferred by\nlaw. A conversion plan is drafted containing the terms and conditions of the\ntransactions.<\/p>\n\n\n\n
Conversion of Business Entity into different type of Business Entities<\/h2>\n\n\n\n
Converting\nthe business entity is a significant decision that may affect the legal\nstructure including liability and taxes. <\/p>\n\n\n\n
There are different types of conversion of business entity mentioned below-<\/em><\/strong><\/p>\n\n\n\n
![\"different](\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/10\/image-4.png\")
<\/figure>\n\n\n\nI. Conversion of Sole proprietorship to any other Business Entity<\/h3>\n\n\n\n
Sole proprietorship is the simplest form of formation of a business entity. It only requires capital, for starting the Sole proprietorship<\/strong><\/a> business, as an individual a person only requires a layout of the new business and contributing capital.<\/p>\n\n\n\n
![\"sole](\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/10\/image-5.png\")
<\/figure>\n\n\n\nBut converting a Sole proprietorship into a Partnership Firm<\/strong><\/a> or Company<\/strong> is a complex process. As for partnership firm, the partners are required to comply with the Partnership Act 1932<\/strong> and by signing a Partnership Deed. <\/p>\n\n\n\n
Forming a company,<\/strong> is a more advanced type of\nbusiness organization which requires more statutory compliances, legal\nformalities, lengthy procedures, reporting to the appropriate authorities and\npaperwork. Companies are also required to establish by-laws and to conduct the meetings\ni.e. Board meetings, Annual General Meeting and Extra-Ordinary General Meeting.<\/p>\n\n\n\n
II.Conversion of Partnership Firm into a Company<\/h3>\n\n\n\n
Conversion of Partnership firm into\na company represents a change of a business entity from one formalized type to\nanother. The procedure involves forming a new company and to dissolve the\npartnership entity. <\/p>\n\n\n\n
Further, it also involves the\ntransfer of assets and liabilities from Partnership firm to the new one i.e. a\ncompany which is done through one of the following three methods: <\/p>\n\n\n\n
- A\nDirect way of transfer of assets and liabilities from the old entity i.e. From\nPartnership into the new entity i.e. Company, <\/li>
- Distribution\nof the assets and liabilities to the owners who will then transfer them to the\nnew Company, or<\/li>
- Contributing\npartnership shares to the Company. <\/li><\/ul>\n\n\n\n
The conversion is technically tax-free and reduction in liability.<\/p>\n\n\n\n
![\"Conversion](\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/10\/image-6.png\")
<\/figure>\n\n\n\nThe Procedure is as follows:<\/strong><\/p>\n\n\n\n
- For\nconverting a partnership into a Company there must be a provision in the\nPartnership deed.<\/li>
- The\nPartnership must fulfill the criteria of having at least 2 Directors in case of\nPrivate Company and 3 directors in case of Public company along with the DIN\nand DSC of the directors.<\/li>
- To\nhold the meeting of all the Partners and to take the consent for the conversion\nand consent of all the creditors are also required.<\/li>
- Obtaining\nthe name approval for the proposed company through RUN along with the required\nattachments stating that the partnership firm is proposed to be converted into\nthe Company.<\/li>
- Advertisement in 2 Newspaper that the firm\nseeking registration shall publish an advertisement about the registration, for\nseeking objections, if any within 21 days from the date of issuance of notice\nand the advertisement shall be in Form\nURC-2 which shall be published in 2 newspaper i.e. one English Newspaper and\none Vernacular newspaper in which such firm is situated.<\/li>
- Further,\nnecessary documents and affidavit, duly notarized shall be filed to the ROC for\nthe approval of the conversion of Partnership into a Company.<\/li><\/ul>\n\n\n\n
III. Conversion of Private Company into Public Company<\/h3>\n\n\n\n
The procedure for conversion of Private Company into a Public Company<\/strong><\/a> involves approval of the Board of the directors and the members\/shareholders of the company. The procedure of conversion of Private Company into Public Company is mentioned below-<\/p>\n\n\n\n
![\"Conversion](\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/10\/image-7.png\")
<\/figure>\n\n\n\n- Convene the Board meeting to approve the proposal of conversion of private company into Public company.<\/li>
- To fix the day, date, time and venue for holding the general meeting of the company for passing the required special resolution.<\/li>
- To approve the notice for the general meeting along with the explanatory statement<\/li>
- For issuing the notice of the general meeting on behalf of the board it is required to authorize the Company secretary or any other competent officer.<\/li>
- Issue notice to all the shareholders\/members of the company.<\/li>
- Hold the annual general meeting and to pass the special resolutions for alteration of MOA and AOA.<\/li>
- MGT-14 is to be filed to the Registrar of the company within 30 days.The copy of documents required as the attachment in Form MGT-14 are-<\/li>
- Special resolution along with the explanatory statement<\/li>
- Altered Memorandum of Association<\/strong><\/a> and Articles of Association.<\/li>
- E-form INC-27 to be filed to ROC for the conversion of Private Company into a Public Company.<\/li>
- A fresh certificate of Incorporation is obtained from the Registrar of the Companies, consequent upon conversion of Private Company into a Public Company.<\/li><\/ul>\n\n\n\n
IV. Conversion of Public Company into a Private Company<\/h3>\n\n\n\n
Many Public companies have converted or in the process to convert it into a Public Company, keeping in view the relaxations provided to a Private Company. The conversion takes place from the date of receipt of the approval from the registrar and after the issue of a fresh certificate of incorporation.<\/p>\n\n\n\n
![\"Conversion](\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/10\/image-8.png\")
<\/figure>\n\n\n\nA Public Company within the limits imposed upon the\nprivate companies may become a private company by following the below-mentioned\nprocedures-<\/p>\n\n\n\n
- Convene the Board meeting for the purpose of approving the proposal of conversion of Public Company into Private Company.<\/li>
- To fix the day, date, time and venue for holding the general meeting of the company for passing the required special resolution.<\/li>
- To approve the notice for the general meeting along with the explanatory statement.<\/li>
- For issuing the notice of the general meeting on behalf of the board it is required to authorize the Company secretary or any other competent officer.<\/li>
- Issue notice to all the shareholders\/members of the company.<\/li>
- Advertisement in Form INC-25A, at least 21 days before the date of filing of the application in a vernacular language in the vernacular newspaper and the English language in an English newspaper<\/li>
- Hold the annual general meeting and to pass the special resolutions for the alteration of MOA and AOA.<\/li>
- MGT-14 is to be filed to the Registrar of the company within 30 days. The copy of documents required as the attachment in Form MGT-14 are-<\/li>
- Special resolution along with the explanatory statement<\/li>
- Amended Memorandum of Association and Articles of Association.<\/li>
- Along with the application, a list of creditors and debenture holders shall be attached. <\/li>
- An application for the Conversion of Public <\/strong><\/a>Company<\/strong><\/a> into Private Company shall be filed to the Regional Director. Following details are required to be mentioned in the Application:
- The details (along with date) of the Board meeting at which the proposal for the alteration of Memorandum and Articles was approved;<\/li>
- The date of the general meeting at which the proposed conversion was approved;<\/li>
- Details of conversion (along with the reasons) into a private company and the effect of conversion on shareholders, creditors, debenture holders, deposit holders ,and other related parties;<\/li>
- Details of any conversion made within the last five years and outcome thereof along with a copy of the order.<\/li>
- Form RD-1 is required to be filed with Regional Director within 60 days of passing of Resolution along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 with following attachments:
- a. Copy of Application signed by the directors.<\/li>
- A Draft copy of Altered Memorandum of Association and Articles of Association.<\/li>
- Copy of the MINUTES <\/strong>of the general meeting with details of votes cast in favor and or against with names of dissenters.<\/li>
- Copy of Board resolution not earlier than 30 days authorizing to apply for such conversion<\/li>
- Scanned, Signed and Stamped Copy of ADVERTISEMENTS<\/strong><\/li>
- Declaration by Key Managerial Personal (If in case where there is no KMP in the Company by any of the Directors) that:
- The limit of the number of members to 200. <\/li>
- NO DEPOSIT has been accepted by the Company in violation of the Act and rules made thereunder and NO NON-COMPLIANCE<\/strong> of sections 73 to 76A, 177, 178, 185, 186 and 188 of the Act and rules made thereunder.<\/li>
- Details of the creditors and debenture holders i.e.
- Name and Address of every creditor and debenture holder.<\/li>
- Nature and amounts due to them in respect of debts, claims or liabilities.<\/li><\/ul><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/li>
- The Company shall file an AFFIDAVIT[1]<\/a><\/sup><\/strong>, signed by the Company Secretary of the Company, or by the 2 directors,1 of whom shall be the Managing Director to affect that –
- They have made a full inquiry into affairs of the company, <\/li>
- They are full of opinion that the list of creditors and debenture holders is correct, <\/li>
- Proof of Serving the Notice to all Creditors, Debenture holders, Registrar and other Regulatory Bodies.<\/li><\/ul><\/li>
- In case of any objection is raised from any creditor or debenture holder in response to the advertisement or notices issued, the Company shall submit the copy of Objection with the Regional Director.<\/li>
- Where an objection is raised, to hear the Regional director will call the concerned person (Creditor and Debenture holder) who has objected and to the Company and after giving the proper opportunity of being heard, the regional director will take the decision.<\/li><\/ul>\n\n\n\n
Note <\/strong>– (Any Representative can come for\nhearing on behalf of the both a person who has raised the objection and\nCompany).<\/p>\n\n\n\n
- On examining the application, where\nthe Regional Director finds it necessary to call for further information he\nshall within 30 days from the date of receipt of the application, Regional\nDirector gives intimation of such information by directing the person or the\ncompany to furnish such information, within 15 days in e-Form\nNo. RD-GNL-5.<\/li>
- After rectification, the Regional\nDirector will issue certified copies.<\/li><\/ul>\n\n\n\n
V.Conversion of OPC to convert itself into a Public or Private Company<\/h3>\n\n\n\n
![\"Conversion](\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/10\/OPC-to-company.png\")
<\/figure>\n\n\n\nIn\ncase, of Compulsory Conversion <\/strong><\/p>\n\n\n\n
The conversion of One Person Company<\/strong><\/a> to Private or Public Company is compulsory if –<\/p>\n\n\n\n
- The\nPaid-Up share capital of an OPC exceeds Rs. 50 lakhs,<\/li>
- Average\nAnnual Turnover of an OPC during the immediately preceding 3 consecutive financial\nyears exceeds Rs. 2 crores.<\/li><\/ul>\n\n\n\n
The OPC shall within 6 months from the\ndate the exceeding the above-mentioned limits shall be required to convert\nitself into –<\/p>\n\n\n\n
- A\nPrivate Company-With a minimum of 2 Members and 2 Directors.<\/li>
- A\npublic Company-With a minimum of 7 Members and 3 Directors.<\/li><\/ul>\n\n\n\n
- Details of the creditors and debenture holders i.e.
- Statutory\nConversion<\/strong><\/li><\/ul>\n\n\n\n
- Merge\nover\/Inter-entity merger<\/strong><\/li><\/ul>\n\n\n\n
![\"Conversion](\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/10\/Company-to-OPC.png\")
<\/figure>\n\n\n\n