TAXAJ

Proprietorship to Partnership Firm Conversion

Where most of the businesses start as a proprietorship firm, one can always change the business structure by exploring the benefits of partnership by adding a partner. Especially when the operations reach certain esteemed levels, a partner may be required to increase the efficiency and act as a catalyst for the faster growth of the present business. With the increase in the number of partner(s) in the business, the efforts and capital both would increase propelling the business growth. For conversion from an unorganized business structure to a partnership firm, the business is likely to pass through procedural requirements. Once the business is converted to the partnership, all the assets, liabilities and rights accompanied to proprietorship will be passed on to the partnership firm; subject to the consent of partners.

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About This Plan

Get your proprietorship firm converted into partnership in the fastest possible manner.

Created by potrace 1.15, written by Peter Selinger 2001-2017

Timeline

It usually takes 7 to 10 working days.

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Services Covered
Who Should Buy
How It's Done
Documents Required
Services Covered

  • Issue of Incorporation Certificate along with PAN and TAN
  • Includes Govt Fees & Stamp duty for Authorised Capital upto Rs. 1 Lakh
  • Excludes foreign national / Body Corporate as director or business needing RBI/SEBI approval
  • Assistance in Opening Bank Account
Who Should Buy

  • Businesses looking to expand or scale operations on higher level
  • Businesses looking to convert their existing proprietorship firm into partnership
  • Businesses aiming to work globally or with reputed clients
How It's Done

  1. Preparation of Incorporation Documents

  2. Getting those docs signed by the respective stakeholders

  3. Filing of e-Forms with ROF

  4. Receipt of Incorporation Certificate with PAN, TAN, GST, EPF, ESI & Bank Account.

Documents Required

  1. Name, Contact Number and Email Id of all the Stakeholders.

  2. Directors Identification Number, if already.

  3. Self Attested PAN, Aadhar & Passport size photo of all the Stakeholders.

  4. Apostilled Passport, Mobile Bill and other KYC docs in case of NRI Stakeholder.

  5. Latest Month Personal Bank statement of all the Stakeholders.

  6. Specimen Signatures of all Stakeholders.

  7. Few Proposed Business Names along with Objects.

  8. Latest Electricity Bill/Landline Bill of Registered Office.

  9. NOC from owner of registered office, If Owned. (Download Template)

  10. Rent Agreement from Landlord, If Rented/Leased. (Download Template)

  11. Brief description of main business activities of the proposed Company.

  12. Shareholding pattern (50:50 or 60:40) between the Stakeholders.

  13.  Authorised & Paid Up Share Capital of the Company.

Benefits of converting Proprietorship to Partnership

Shared Liability

The term Partnership, itself describes two or more individuals coming together for fulfilling some common objective. The partnerships referred here are of pure business nature. Therefore, the partners share the responsibility to work and manage the business. Partners share rights and liabilities in the business, dividing the burden of responsibilities among them. Not just money but resources, knowledge and judgment are also pooled in for improving the business.

With conversion, you do not need to start new business

With conversion, the accumulated loss and unabsorbed depreciation of Proprietorship is deemed adjusted as loss/ depreciation of the successor partnership firm. All the assets and liabilities of the firm immediately after the conversion are turned into the assets and liabilities of the partnership. All movable and immovable properties of the firm automatically vest in the partnership. Hence, the conversion is easy and hassle-free.

Partner Net Worth is Increased

There is a distribution of Post-Tax profits among the partners with no additional tax liability. No Capital Gains tax shall be charged on transfer of property from Proprietorship to Partnership firm. The reduction of tax liabilities indirectly increases the amount of money earned which results in an increase of net worth of all the partners.


No Fixed Capital Investment required

The partners can internally decide on their individual investment in the firm and then divide the stakes accordingly, which gives them the flexibility to make decisions in the business. Uneven capital contribution between partners is permissible. There is no predefined limit on partners’ capital contribution, allowing the partners for putting in preferable amounts as capital and make decisions about the withdrawals mutually.

Frequently Asked Questions

Whether the registration of partnership after conversion from proprietorship is mandatory?

It is not mandatory but highly recommended. If it is not registered, the firm cannot file a suit against any partner or third party. The partners also cannot sue the partnership firm for his/her claim. However, third parties can sue the firm to enforce their dues or claims. Due to non-registration, the rights of parties are not affected. Also, the partnership can be registered at any time after the formation to remove said effects.

What are the advantages of registering a partnership firm?

In a proprietorship firm, there is no legal distinction between you and the business; leaving you personally liable for any debts or obligations the business may incur. Also, there are no limitations and no protection for your personal assets. In case of partnership firm, it is divided amongst the partners.

Under which Government Authority, the application of Partnership Firm Registration is submitted?

The application for Partnership Firm Registration in India is submitted with the Registrar of Firms (RoF) under whose jurisdiction the Place of Business of Partnership Firm falls. The application of Registration is made in required form along with submitting the Partnership Deed. At the end of the registration procedure, the Certificate of Registration is issued by respective RoF. The process and time of registration may differ for each RoF.

To be eligible to be a partner, an individual must be a major (above the age of 18), should be sane and should not be disqualified by law from entering into a contract.

A partner can nominate a successor to take his/her place in the event of death or retirement of the partner. The mode of introducing a new partner or successor is based on provisions in the partnership deed. A new partnership deed is required once the new partner is admitted into the firm.

As per Schedule-2 of CGST/SGST Act, there is no need to pay tax on the sale of stock where it is moved from proprietorship to the new firm (in case of re-structuring of business) subject to the condition that the existing proprietorship ceases to be a taxable person after such re-structuring.

In case of conversion, existing firm should cease to be a taxable person . There should not be any activity in converted proprietorship after transfer of stock into a new entity. In case, there are unutilized input tax credits lying at the time of such conversion, these credits are allowed to transfer into a new entity.

For confirming the validity of a partnership deed, the partners must pay stamp duty required as per the capital of the firm. The amount of stamp duty payable depends on the amount of capital contribution by partners. The rate of duty is prescribed under the State Stamp Act that differs for every State. Amount of ₹ 500 is included in our package.

The partnership firm shall also have to apply for registration under other statutes such as GST, Shop and Establishments Act and the likes; depending on the nature of the business. In case the sole proprietorship firm owns a trademark, the change regarding the inclusion of partner needs to be added in the trademark registry.

Partnership firms do not need to prepare audited statements for each year. However, depending on the turnover and a few other criteria, a tax audit statement might be necessary.

Yes, you will have to apply for a new GST registration and then surrender the one taken in the name of proprietorship firm. You can get the GST registration done with TAXAJ at an additional cost.