proprietorship to partnership

A sole proprietorship firm is a type of business entity that is owned, controlled and managed by a person (promoter). There is no legal difference between the business and its promoter. All profits are received by the promoter himself/herself. It is extremely easy to start such an entity as there are lesser legal formalities and lesser formation costs involved.
A partnership is a type of business organisation wherein two or more individuals come together and manage the business as per the terms and objectives set out in the Partnership Deed.

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why to convert from Proprietorship to Partnership?

Being only an owner with a limited workforce and decision making skills, the opportunities might be restricted in a sole proprietorship. However, a group of people having the same intention of business and each having their thoughts and ideas to carry out the business can lead the company to tremendous success. Also, a partnership firm has more credibility for fundraising than a proprietorship which is quite essential for the growth of any business.

Table Of Contents

Benefits for Conversion

Drawbacks

However, the partnership firm also have demerits, such as

Documents required for conversion of a Partnership Firm

ID proof for all partners
Business proof
Updated Financials statement duly certified by CA (Chartered Accountant)

Note : The partnership firm will require to obtain a PAN, GST number (if applicable) and Bank Account in the name of the firm. PAN of each partner will not be enough for the partnership firm.

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FAQs

a. What is the limit on the number of partners?

A partnership firm must have at least two partners to form a firm. A partnership firm in the banking business can have up to 100 partners, while those engaged in any other business can have 50 partners.

b. Is it mandatory to obtain a new TAN for the firm?

Yes, the partnership is required to obtain a new TAN for the firm if the Partnership firm is liable to deducted TDS/TCS as per provision of Income Tax Act,1961.

c. The requirement to be a partner in a partnership firm?

An individual, being competent to contract, can become a partner in the partnership firm. NRIs also can be a partner in a partnership firm subject to certain conditions. Even a minor can be a partner in a partnership act; a minor may also be admitted to the benefits of a partnership. The following can enter into a partnership:

  •  Individual
  •  Karta of Hindu Undivided Family
  •  Partnership firm
  •  Company
  •  Trustees
d. Should I register my partnership firm or not?

Registering a partnership firm is beneficial for the partners as well as the partnership firm. By registering, a partner can complain or sue another partner or the firm itself. Moreover, to bring any suit to court, the firm should be registered. However, for small or family businesses, it is fine if a firm is not registered.

e. Still have doubts?

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