When a company wants to convert into a limited company, they get the blessing of limited liability along with the significance of a separate legal entity.
The objectives, requirements, and problems of converting a firm into a limited company are mentioned below.
Objectives of conversion of a firm into a limited company
When a firm wants to convert into a limited company, they get some benefits. The key benefits are mentioned below.
All the firm's benefits and liabilities preceding the change become the advantages and liabilities of the organization.
No Stamp Duty
All mobile and unfaltering properties of the firm consequently vest in the Company. No instrument of the move is needed to be executed, and henceforth no stamp obligation is needed to be paid.
No Capital Gain Tax
No Capital Gains charge will be charged on the move of property from Proprietorship firm to Company.
Continuation of Brand Value
The Proprietorship firm's generosity and image esteem are kept untouched and keep on appreciating the past example of overcoming adversity with a superior lawful acknowledgment.
No hurry to meet the misfortunes immediately
The Proprietorship firm's collected misfortune and unabsorbed devaluation are esteemed to be misfortune/deterioration of the replacement organization for the earlier year in which change was affected. Subsequently, such misfortune can be conveyed for additional eight years in possession of the replacement organization.
Along with some disadvantages, a corporation of firms is the urgency of the hour. Hence, the conversion of partnership firm into limited company is the only way to get along with the corporate sector changes.
What are the things required to convert a firm into a limited company?
The main objectives of conversion of a firm into a limited company are to limit the partners' liabilities. To do that, there are some requirements mentioned that need to be submitted are mentioned below:
Prerequisites for the conversion of a firm into a limited company:
a) Registered Partnership firm with least at least 2 Partners
b) Minimum Share Capital will be Rs. 100,000 (INR One Lac) for transformation into a Private Limited Company
c) There must be an arrangement in the Partnership deed for changing over the firm into Company
d) There must be an arrangement between the accomplices to change over the firm into Company.
d) If the above prerequisite isn't satisfied by the firm, at that point the Partnership deed ought to be modified
e) Minimum 2 Shareholders and Directors. Nonetheless, Directors and investors can be the same individual.
h) Director Identification Number (DIN) is essential for all the Directors.
I) Digital Signature Certificate (DSC) needs to be proved for two of the Directors.
Conversion of partnership firm into limited company problems
Cons of changing over Partnership to LLP or Pvt. Ltd. Co.
- A Partnership Firm is a much easier business structure to begin. A Private Limited Company has a broad rundown of administrative compliances to document. It additionally needs to have a review directed obligatorily. LLPs have fewer consistency necessities than Pvt. Ltd.
- All the benefits and liabilities identified with the business are moved.
- All the firm's accomplices preceding the progression become the investors of the organization to a similar extent as their capital records on the date of progression.
- The firm's accomplices will not get any thought or advantage straightforwardly or in a roundabout way, in any structure or way, by some other means than the method of assignment of offers in the organization.
- The shareholding in the organization by the accomplices of the firm isn't under half of the democratic force, and their shareholding keeps on being as such for a time of a long time from the date of progression.