Change of Partnership firm into a Private Limited Company is a decent alternative for any individual who wishes to grow little and medium scale undertakings to an enormous scope one, or for the equity Capital.
With the appearance of the organization’s change act 2017, the criteria of requiring at least seven individuals for any substance to be changed over into a Private Limited Company has been finished with. Under the changed segment 366 of the organization’s Act, 2013 any entity be it an LLP, association firm, co-usable society, or some other business substance shaped under some other law, with least two individuals can be registered as a Private Limited Company. Such conversion to take place is to be satisfied with other requirements such as securing approval from all partners and secured creditors for such conversion, a notification in the paper to be given in one English and one vernacular language looking for complaints lastly followed by the incorporation process of Private Limited Company.
The alternate option available to the partners is to set up a separate Private Limited Company and then get the entire business of Partnership Firm transferred to the company through a written agreement under which the above-mentioned requirements such as the requirement for having minimum two partners, newspaper advertisement, etc. are not required to be satisfied but may attract stamp duty on transfer of property through takeover agreement and may vary in different states.
Conversion Of Partnership Firm Into Private Limited Company
All the assets and liabilities of the Partnership firm immediately before the conversion become the assets and liabilities of the company.
There is a minimum of two or more Partners in the existing Partnership firm for converting the Partnership firm into a Private Limited Company.
The accumulated loss and unabsorbed depreciation of the Partnership firm are 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.
All partners of the partnership firm shall become shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the conversion.
No Capital Gains tax shall be charged on transfer of property from Partnership firm to Company.
The goodwill of the Partnership firm and its brand value is kept intact and continues to enjoy the previous success story with better legal recognition.
All movable and immovable properties of the Partnership firm automatically vest in the Company. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.
The partners receive consideration only by way of allotment of shares in the company and the partners shareholding in the company in aggregate is 50% or more of its total voting power.
in this editorial author discusses provisions of Conversion of Partnership firm into Company considering the recent announcement by Hon’ble finance minister in respect of tax benefit to Corporates i.e.:
A new provision inserted in the income tax act with effect from the fiscal year 2019-20, that allows any domestic company to pay income tax at the rate of 22% subject to the condition they will not avail any incentive or exemptions
Manufacturing companies set up after October 1 to get the option to pay a 15% tax. The effective tax rate for new manufacturing firms to be 17.01% inclusive of surcharge & tax
After the above announcement, many business houses are looking for conversion of their firms into Companies. After conversion, there are lots of benefits of taxations for the firms.
In the below-mentioned article author attempt to cover up the provisions of the Companies Act and capital gain implication while conversion from a Partnership firm into a Company.