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Convert Proprietorship to Partnership

While many businesses begin as proprietorship firms, it's possible to reap the benefits of a partnership by adding a partner. As operations grow and reach higher levels, a partner can increase efficiency and act as a catalyst for faster growth. With additional partners, both capital and effort increase, propelling business growth. However, converting an unorganized business structure to a partnership firm requires meeting procedural requirements. Once converted, all assets, liabilities, and rights associated with proprietorship will transfer to the partnership firm, subject to the consent of partners.

Benefits of converting Proprietorship to Partnership

Shared Liabilities

In the context of business, the term "partnership" refers to a collaboration between two or more individuals to achieve a common goal. Partnerships are established solely for business purposes, with partners jointly responsible for managing and operating the business. They share both the rights and liabilities of the business, allowing for a sharing of responsibilities. In addition to contributing monetary resources, partners can also contribute their knowledge and expertise to improve the business.

With conversion, you do not need to start new business

Converting from a proprietorship to a partnership involves considering the accumulated loss and unabsorbed depreciation of the former as the loss/depreciation of the successor partnership firm. The partnership assumes all the assets and liabilities of the firm at the time of conversion. Furthermore, all movable and immovable properties automatically become the property of the partnership. This makes the conversion process hassle-free and straightforward.

Partner net worth is Increased

In a partnership, the Post-Tax profits are distributed among partners without incurring any additional tax liability. The transfer of property from a Proprietorship to a Partnership firm is not subject to Capital Gains tax. This reduction in tax liabilities indirectly results in an increase in the amount of money earned, ultimately leading to a higher net worth for all partners.

No fixed capital investment required

Partners have the freedom to determine their personal investments within the company and allocate stakes accordingly. This approach enables them to exercise flexibility in decision-making. Additionally, partners are permitted to make uneven capital contributions. The absence of a set limit on capital contributions affords partners the ability to invest varying amounts of capital and collaboratively decide on withdrawal decisions.

Documents Required for incorporating a partnership firm

Business proof

Electricity Bill/ Telephone Bill of the registered office address

ID Proof

Self- attested copy of Aadhar Card, Voter ID/ Passport/ Driving License of all partners. A self-attested copy of PAN Card of all partners

Details about the sole Proprietors Business

If the proprietorship firm is licensed under GST or any other registrations obtained , forms need to be submitted to the concerned departments for change of status of the business

Statement of assets and liabilities

updated statement of assets and liabilities certified by a CA.

Convert into Partnership in 3 Easy Steps

1. Answer Quick Questions

It takes less than 10 minutes to fill in our questionnaire
Provide basic details & documents required for proprietorship to partnership conversion.
Make payment through secured payment gateways

2. Experts are Here to Help

Assigned Relationship Manager
Drafting of Partnership Deed
Payment of Stamp Duty on Deed
Notary of Partnership Deed
Application for PAN and TAN

3. Your Business is Established

All it takes is 12 working days*

_{*Subject to Government processing time}

Process to change into a Partnership Firm

Day 1

Discussion and collection of basic Information
Provide Required Documents

Day 2 - 4

Drafting of Partnership Deed
Review and confirmation from Partners

Day 5 - 7

Payment of Stamp Duty on Agreement
Notarization of Partnership Deed
Application for allotment of PAN and TAN

Day 8 onwards

Registration of Partnership Deed, if subscribed
Certificate of Registration from RoF*

Explore conversion of Proprietorship to Partnership

Frequently Asked Questions

It is not mandatory but highly recommended. If it is not registered, the firm cannot file a suit against any partner or third party. The partners also cannot sue the partnership firm for his/her claim. However, third parties can sue the firm to enforce their dues or claims. Due to non-registration, the rights of parties are not affected. Also, the partnership can be registered at any time after the formation to remove said effects.

In a proprietorship firm, there is no legal distinction between you and the business; leaving you personally liable for any debts or obligations the business may incur. Also, there are no limitations and no protection for your personal assets. In case of partnership firm, it is divided amongst the partners.

The application for Partnership Firm Registration in India is submitted with the Registrar of Firms (RoF) under whose jurisdiction the Place of Business of Partnership Firm falls. The application of Registration is made in required form along with submitting the Partnership Deed. At the end of the registration procedure, the Certificate of Registration is issued by respective RoF. The process and time of registration may differ for each RoF.

To be eligible to be a partner, an individual must be a major (above the age of 18), should be sane and should not be disqualified by law from entering into a contract.

A partner can nominate a successor to take his/her place in the event of death or retirement of the partner. The mode of introducing a new partner or successor is based on provisions in the partnership deed. A new partnership deed is required once the new partner is admitted into the firm.

As per Schedule-2 of CGST/SGST Act, there is no need to pay tax on the sale of stock where it is moved from proprietorship to the new firm (in case of re-structuring of business) subject to the condition that the existing proprietorship ceases to be a taxable person after such re-structuring.

In case of conversion, existing firm should cease to be a taxable person . There should not be any activity in converted proprietorship after transfer of stock into a new entity. In case, there are unutilized input tax credits lying at the time of such conversion, these credits are allowed to transfer into a new entity.

For confirming the validity of a partnership deed, the partners must pay stamp duty required as per the capital of the firm. The amount of stamp duty payable depends on the amount of capital contribution by partners. The rate of duty is prescribed under the State Stamp Act that differs for every State. Amount of ₹ 500 is included in our package.

The partnership firm shall also have to apply for registration under other statutes such as GST, Shop and Establishments Act and the likes; depending on the nature of the business. In case the sole proprietorship firm owns a trademark, the change regarding the inclusion of partner needs to be added in the trademark registry.

Partnership firms do not need to prepare audited statements for each year. However, depending on the turnover and a few other criteria, a tax audit statement might be necessary.

Yes, you will have to apply for a new GST registration and then surrender the one taken in the name of proprietorship firm. You can get the GST registration done with Nxtwaystartup.com at an additional cost.