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Conversion of Proprietorship to Partnership

Conversion of Proprietorship to Partnership

Proprietorship firm registration means a firm which is owned and control by sole member. There is no separate legal entity between the sole proprietor and the business property. Sole member is the only owner of the property who enjoys all the profits and suffers all the losses of the firm. The liability of the sole member is unlimited which means when business profits are not sufficient for set off the losses of the business then the personal property of the sole owner should be used for setting off the losses. In proprietorship firm registration, there is a minimum requirement of regulatory compliance for starting and operating.

For the establishment of a partnership firm registration, no heavy legal formalities are required. It is very easy to set up a partnership firm where two or more person can work for their mutual benefit. In partnership firm, partners have unlimited liability, if the profit of the firm is not sufficient to settle their losses than they are liable from their personal assets. Partnership firm registration not required to file an annual return with the registrar on an annually basis.

Conversion of Proprietor to Partnership

As the legal forms of both type of entities are different, so, PAN number, GST Number, Bank Accounts of both entities will always be different from each other. PAN of individual person owing proprietorship firm serves itself as PAN of such firm. However, for partnership, PAN is different from the PAN of partners.

So to convert the proprietorship firm into a Partnership firm, firstly, it is required to incorporate a partnership firm and then arrange for PAN, GST number, Bank accounts of the Partnership firm.

Process of Conversion of Proprietorship to Partnership

01
Drafting of Partnership Deed

The conversion of a sole proprietorship into a partnership begins with the drafting of the partnership deed of your firm.

02
Declaration of Transfer:

The deed, in this case, would be different from a regular partnership deed, as it would also make several references to the proprietorship business and declare that it has been transferred to the partnership firm.

03
Important Inclusions:

The details that would need to be included are the date of formation of the sole proprietorship, the name of the proprietor, the type of business and any other details, such as VAT and Service Tax registration, in which case the TIN and Service Tax number would need to be disclosed.

04
Date of Starting:

The deed would also include the date when you would be starting the partnership and induction of partner/partners into the firm.

05
Investment Details:

The deed must state how much capital will be invested by each partner, how profits and losses will be split and state specifically what will happen in case of the retirement of a partner for whatever reason.

The deed must also state all the changes that will occur on account of the introduction of the new business partners. Even a change in the registration address of the firm should be included.

06
Registration:

Registration is not a mandatory procedure. However, it is recommended, in certain cases, for the firm to register the deed. This enables the partnership to file suit and the partners to file suit against other partners.

Once the deed is signed by every partner on stamp paper, the sole proprietorship has been dissolved and the partnership deed comes into effect. Alternately, the deed could mention a date on which the partnership will commence.

How to Conversion of Proprietorship to Partnership

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Features of Conversion of Proprietorship to Partnership

  • Partnership firm registration does not have any separate legal entity
  • Partnership firm can’t be a member of any other company by its own name except section 8 company.
  • Maximum numbers of partners in partnership firm are 20 and in banking sector shall not exceed by 10
  • Partners of a partnership firm are freely decide the name of firm but which should not be identical, resemble with the name of a firm which is already registered.
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Frequently asked questions on Conversion of Proprietorship to Partnership

1.1. How can a proprietor be converted into a partnership firm?

Ans.  However, for partnership, PAN is different from the PAN of partners. So to convert the proprietorship firm into a Partnership firm, firstly, it is required to incorporate a partnership firm and then arrange for PAN, GST number, Bank accounts of the Partnership firm. Other Terms and Conditions as mutually agreed.

2. How can a partnership firm be converted to proprietorship in GST?

Ans.  The registration obtained in the name of Partnership Firm cannot be changed in name of Proprietorship Firm. [2] First on dissolution of the Firm, the partners need to surrender the GST Registration and subsequently obtain fresh registration in Name of Proprietorship Firm.

3. How do I turn my company into a proprietorship?

Ans.  Initiating the Process of Conversion
  • Obtaining the Digital Signature Certificate (D.S.C.) and Director Identification Number (DIN) for the sole proprietor and new director.
  • Acquiring permission for naming the company, the application for which must be made in Form-1. …
  • Apply to M.C.A. for incorporation of company.

4.What is difference between proprietorship and partnership?

Ans. The most obvious difference between partnership and sole proprietorship is the number of owners the business has. “Sole” means one or only, and a sole proprietorship has only one owner: you. Conversely, it takes two or more to form a partnership, so this type of entity has at least two owners.

5. Is Sole proprietorship better than partnership?

Ans. A sole proprietor is limited to money he can invest in the business, loans from family and friends and third-party credit. Partnerships enable you to share the financing and operational burden. You give up equity in your business, but you gain additional resources that can help the business expand more quickly.

6. How do you change a partnership?

Ans.   Step 1: Take the mutual consent of partners.
Step 2: Prepare for making a supplementary partnership deed.
Step 3: Executing supplementary partnership deed.
Step 4: Do the filing with Registrar of Firm (RoF).

7. What are the disadvantages of sole proprietorship?

Ans. The main disadvantages to being a sole proprietorship are: Unlimited liability: Your small business, in the form of a sole proprietorship, is personally liable for all debts and actions of the company. Unlike a corporation or an LLC, your business doesn’t exist as a separate legal entity.
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