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
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Sharing Risks
Partnership firms ensure diversified financial risks by enabling sharing of risks by all the partners as the profit of the business is shared by all the partners -
Better Tax Planning
The partnership firm is independent and its tax is calculated separately. Interest, salary, bonus, commission, or remuneration to a partner will be allowed as a deduction to a partnership firm. It acts as a legal tool for tax planning -
Decision Making
Every partner owns the activities of their firm. Partners together providing their combined inputs in the decision making leads to more incredible ideas and also builds a sense of belonging. However, in sole proprietorship, the proprietor is the only owner in the business and has abilities restricted to the single workforce -
Fund Raising
Financial institutions view a partnership as more credible than a proprietorship firm while lending loans or giving credit facilities instead of a proprietorship firm. Multiple partners can make for more feasible contributions
Drawbacks
However, the partnership firm also have demerits, such as
- Sharing of profits with other partners
- Unlimited liabilities of partners (except in case of minor partner)
- Combined ownership and management can also create disputes among partners
Documents required for conversion of a Partnership Firm
ID proof for all partners
- Self-attested copy of PAN of all partners
- Self-attested copy of Driving License/Aadhaar Card/Passport/ Voter ID of all partners
- Passport size Photograph of all partners
Business proof
- Rental/lease agreement and NOC from the owner of the place (if rented)
- Electricity Bill/any other utility bill of the registered office of the firm
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.
How can we help you?
We have a team of experts to view your request and to carry out the procedure efficiently.
- Submit a service request by clicking here
- Our expert team will contact you with a simple checklist
- Fill in the list and submit the required documents
- Our team will verify the documents sent by you
- After examining the documents by our team member, Partnership deeds will be drafted and sent to you for verification. Once you and your partners verify it, the act will be executed
- After executing the deed, we will proceed to apply PAN and TAN for your firm
- On receipt of PAN in the name of your firm name, you may proceed for the opening of your firm's current bank account with a bank of your choice
- Throughout the process, our dedicated manager will keep you updated on the progress of the application.
Get in touch with our experts by clicking here.
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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