Adrija Guhathakurta
National Law University, Odisha
Partnership, Limited Liability Partnership, Private Limited Company, One Person Company, Sole Proprietorship, Public Company. Association, Limited Liability Partnership, Private Limited Company, One Person Company, Sole Proprietorship, Public Company. A nation like India gives you wide choices with regards to business. As an entrepreneur, you have the decision to choose between these types of businesses. In any case, before picking you have to know the upsides and downsides of every one of these structures. You have to see which structure will profit you and your business the most. These structures have various necessities, various focal points, and burdens. Discussing Partnership, perhaps the greatest drawback of this structure is the boundless obligation it gives to its partners. This component puts the individual resources of the partners at high hazard. To forestall this hazard, there are firms and organizations with limited liabilities. They are so named, Limited Liability Partnership and Private Limited Company. Business people these days are going for the transformation of their organizations to these two types of businesses to stay away from the risk inducing partnerships.
Before diving into the advantages of such conversions, it is necessary to understand what exactly Partnership and Limited Company are and how they are different from each other.
What are Partnership and Limited Liability Companies?
By definition, a partnership is an unincorporated organization claimed by at least two individuals. The proprietors are called partners. A partnership agreement is made which contains information about each partner’s share. Contingent upon where the business works, such an association might be required to enlist with the state.
Limited companies are framed under state law. Various states have various prerequisites, however, by and large, a limited company can be claimed by a solitary individual, by different individuals or even by numerous partnerships and other limited organizations. Proprietors are referred to as members, and their possession/ ownership interest is depicted in a report called the articles of association. States for the most part approve numerous sorts of restricted organizations, contingent upon what the firm does. These incorporate limited liability organizations and limited liability partnerships.
- Responsibility For Business Debts
If the Partnership business can’t pay its obligations, the creditors can attempt to recover their cash by suing a proprietor or attempting to hold onto the proprietor’s very own benefits, for example, homes, vehicles and financial balances.
In case of a limited company, just a few partners are by and by at risk. These are the general partners. Different partners, known as limited partners, are not actually answerable for business obligations. Be that as it may, constrained partners, for the most part, don’t assume a functioning job in maintaining the business.
- How They Are Taxed
Since limited organizations are made under state law, the government tax code doesn’t remember them as an unmistakable sort of business. The IRS perceives just three sorts of organizations: sole ownership, associations and enterprises. What that implies for limited organizations:
- A limited organization claimed by a solitary individual will be treated as sole ownership for government tax purposes. Sole ownership is made to go through substances like partnerships.
- A limited organization with at least two proprietors will be treated as a partnership.
- Any limited organization can decide to be burdened like an enterprise. That implies the organization will pay corporate annual duties/taxes on its profits, and any profits circulated to the proprietors will be burdened as close to home salary.
Conversion of Partnership Firms into Private Limited Company:
A. Requirements:
- Registered Partnership firm with least at least 2 Partners
- Minimum Share Capital will be Rs. 100,000 (INR One Lac) for transformation into a Private Limited Company
- There must be an arrangement in the Partnership deed for changing of the firm into Company.
- There must be an understanding between the partners to change the firm into a Company.
- If the above prerequisite isn’t satisfied by the firm, at that point the Partnership deed ought to be adjusted.
- Minimum 2 Shareholders and Directors. Be that as it may, Directors and investors can be the same individual.
- Director Identification Number (DIN) for all the Directors.
- Digital Signature Certificate (DSC) for two of the Directors.
B. Procedure For Conversion:
- Holding a Meeting Of Members
It is important to hold a gathering of the considerable number of partners of Partnership Firm and take consent for the transformation from its partners. Since the obligation of the individuals from the firm is boundless, when a firm wants to enlist itself as a limited organization, the consent of the lion’s share is required, at the very least three-fourth of the partners ought to be available face to face.
- Receiving Consent From Secured Creditors Of Firm
There is no requirement for achieving any written consent or objection certificate from the secured creditors of the firm if there happens to be any.
- Obtaining Name Approval in RUN for Proposed Company
An application should be documented with the Registrar of Companies (ROC) to get the name for the proposed organization after transformation, with different connections expressing the way that the partnership firm is proposed to be changed under the Companies Act, 2013.
- Requirement for the Publication of The Advertisement in two Newspaper (English Daily and Vernacular)
In accordance with statement (b) of segment 374 of the Act, firm looking for enlistment under the arrangement of Part I of Chapter XXI will distribute a promotion about enrollment under the said Part, looking for complaints, if any within twenty-one (21) crisp mornings from the date of production of notice and the said ad will be in Form No. URC. 2, which will be distributed in a paper, in English and in the chief vernacular language of the region wherein office of such firm is arranged and is ought to be coursed in that area.
- Affidavit
It is required to file an affidavit, appropriately notarized, from all the partners to give that in case of enlistment, fundamental archives or papers will be submitted to power with which the firm was initially enrolled, for its disintegration as partnership firm ensuing to its transformation into a private limited business organization.
- Filing Of Necessary Forms With ROC
It is required to file essential structures with ROC for the endorsement of transformation and for the enlistment of a firm into the Private Limited Company along with all the important connections which determine the reality of change and furthermore the various premise sanction archives like MOA, AOA, and so on which are required if there should be an occurrence of enrollment of organization under the Companies Act, 2013.
Seven Advantages of Converting a Partnership into Limited Liability Partnership:
- Reduced Risk Exposure- Limited Liability Of Partners
As the name proposes, Limited Liability Partnership obtains the particular element of organization type of business of restricted obligation. What this implies for the partners, is that they can’t be by and by held subject for satisfying the obligations of the firm, despite the fact that the money related commitment might be requested or shrunk by them. Along these lines, individual resources like land, property, adornments, and different assets having a place with the partner are ring-fenced from being offered to support the obligations of the firm.
- Ideal For Expansion Of the Business- No limit on the number of Partners
Another bit of leeway is that while a customary partnership requires at least two and a limit of 20 accomplices, the Limited liability organization can have a boundless number of accomplices and consequently, is an advantageous choice when the business is extended and various specialists in shifted fields might be required.
- Audit Procedures, Governance and Better Investor Confidence
On the off chance that the turnover of the Limited Liability association surpasses the recommended furthest reaches of 25 lakhs of commitment or turnover surpasses 40 lakhs rupees in any monetary year, it needs to compulsorily experience a review. The upside of this is improved administration, the executives, and record-keeping, which additionally makes it simpler to apply for licenses and advances. Additionally, this improves the certainty of different partners in the element and upgrades the reliability of the organization and expands access to assets.
- Perpetual Succession
Since an organization isn’t treated as a different substance, its presence relies upon the desire of the association (with the exception of on account of an association constrained by time). In any case, the Limited Liability Partnership is dressed as a different lawful substance having its own seal and never-ending progression, which implies that the exit or downfall of at least one partner will have no impact on the coherence of the organization.
- No Capital Gains On Tax Conversion
There are no capital gain taxation in case the conversion of a partnership into a limited liability organization is affected.
- Carry Forward Of Losses Allowed
On the off chance that there were any losses brought about during any year while the general partnership was in presence, which has not been set-off against profits at whatever year, the equivalent become qualified for set-off under the new limited liability association’s records.
- Ability To Undergo Mergers And Associations
Not at all like a partnership firm, has a limited liability association had the legitimate ability to converge with another limited liability organization or have a tradeoff, game plan or joint endeavour with another firm.
