CONVERSION OF PARTNERSHIP FIRM TO PRIVATE/PUBLIC COMPANY
In an increasingly global market, no entity can think on a large scale unless it turns corporate. Conversion of partnership firm to private limited company or a public company is a need for faster development and growth. SunShine Corporate Solutions provides legal resource for business that need company registration, and even for changing their type of business.
The truth is that the whole world is coalescing into one big market, where there is far less friction in doing business between two countries. Trade barriers are becoming smaller and smaller. A small unincorporated organization led by few partners cannot think of growth on large scale without corporatizing. Corporatization has its own advantages such as Limited Liability, Perpetual Succession, Transferability of shares, easy access to funds etc. If you consider conversion of partnership firm, you open up a lot of opportunities for growth and smooth succession.
Here are the key benefits that business can enjoy by converting into a private or public limited company:
• Automatic Transfer: All the assets and liabilities of the firm are transferred to the company with immediate effect.
• No Stamp Duty: On Conversion of partnership to a limited company all the movable and immovable properties of the firm automatically vests to the company. No instrument of transfer is to be executed and hence no stamp duty is to be paid.
• No Capital Gain Tax: During conversion of partnership firm, there are no capital gains taxes to be paid on transfer of property from firm to Limited Company.
• Continuation of Brand Value: The newly formed limited company retains all assets including trademarks and copyrights of the original firm. Therefore, the brand value and its goodwill continue to be the same. Now the only difference is that the brand has better legal recognition.
• Carry Forward and Set off Losses and Unabsorbed Depreciation: The accumulated loss and unabsorbed depreciation of Partnership firm is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company.
Here are the most important conditions that a business has to adhere to during conversion of partnership to a limited company.
• All the partners in the partnership firm become shareholders of the new company. The proportion of shares should remain in the same proportion in which their capital accounts stood in the books of the firm on the date of the conversion.
• The consideration for transfer is by way of Allotment of shares to the partners in the new company.
• In the newly formed public or private company, the aggregate of shares of the partners of the firm should be 50% or more of its total voting power and continue to be as such for 5 years from the date of conversion to a limited company.
There are certain requirements that need to be met before conversion of partnership to a limited company. These are:
• The partnership firm should have been registered.
• The share capital should be at least Rs. 100,000/- (One Lakh Only) before it can consider conversion to a private limited company
• The share capital should be at least Rs. 500,000/- (Five Lakhs Only) before it can consider conversion to a public limited company
• Partnership deed to be altered to meet the above requirements.
• There should be a minimum of 2 shareholders, and 2 directors for conversion to a private limited company
• There should be a minimum of 7 shareholders, and 3 directors for conversion to a public limited company
• The directors and shareholders can be the same persons
• All the directors should have a Director Identification Number (DIN)
• Directors should procure Digital Signature Certificates (DSC)
There are many steps involved in converting one form of business to another. SunShine Corporate Solutions has been able to help business make a smooth transition and maintain efficiency of operations. Our experts have experience in the legal, financial and bureaucratic work required to complete the conversion of a business. Please contact us in order to learn more about what you need to transform your business into a fast growing company with brilliant prospects.