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Convert Proprietorship to Partnership
Where most of the companies start as a proprietorship firm, one can always change the business structure by exploring the advantages of partnership by adding a partner. Especially when the operations reach certain esteemed levels, a partner could also be required to extend the efficiency and act as a catalyst for the faster growth of this business. With the rise within the number of partner(s) within the business, the efforts and capital both would increase propelling the business growth. For conversion from an unorganized business structure to a partnership firm, the business is probably going to undergo procedural requirements. Once the business is converted to the partnership, all the assets, liabilities, and rights accompanied to proprietorship are going to be passed on to the partnership firm; subject to the consent of partners.
Benefits of converting Proprietorship to Partnership
- Shared Liabilities: The term Partnership, itself describes two or more individuals coming together to fulfilling some common objective. The partnerships referred here are of pure business nature. Therefore, the partners share the responsibility to figure and manage the business. Partners share rights and liabilities within the business, dividing the burden of responsibilities among them. Not just money but resources, knowledge and judgment also are pooled certain improving the business.
- With the conversion, you do not need to start a new business: With conversion, the accumulated loss and unabsorbed depreciation of Proprietorship is deemed adjusted as loss/ depreciation of the successor partnership firm. All the assets and liabilities of the firm immediately after the conversion are became the assets and liabilities of the partnership. All movable and immovable properties of the firm automatically vest within the partnership. Hence, the conversion is straightforward and hassle-free.
- Partner net worth is Increased: There is a distribution of Post-Tax profits among the partners with no additional liabilities. No Capital Gains tax shall be charged on transfer of property from Proprietorship to Partnership firm. The reduction of tax liabilities indirectly increases the quantity of cash earned which ends up in a rise of net worth of all the partners.
- No fixed capital investment required: The partners can internally choose their individual investment within the firm then divide the stakes accordingly, which provides them the pliability to form decisions within the business. Uneven capital contribution between partners is permissible. there’s no predefined limit on partners’ capital contribution, allowing the partners for fixing preferable amounts as capital and make decisions about the withdrawals mutually.
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