While starting a sole proprietorship is simple, it is not ideal for expanding. After all, it’s hard to build a big business on your own.It is recommended that you switch to a partnership if you want to grow your business and add partners without any problems.
How Can a Sole Proprietorship Be Converted into a Partnership?
- Preparation of the Partnership Deed:
The drafting of the company’s partnership deed is the first step in changing a sole proprietorship into a partnership. The business’s structure and partnership will be established in this way.
The induction or beginning date of the partnership must be stated in the deed. For instance, the specifics of the partners’ induction.
- Transfer Declaration:
A transfer declaration deed is distinct from a typical partnership deed. It will declare the transfer to a partnership firm and make multiple references to the sole proprietorship.
Deeds must include the proprietor’s name, the type of business, the date of sole proprietorship formation, and other information, such as registration for Service Tax and VAT. The TIN and Service Tax number must be disclosed in this instance.
- Selecting a Name:
Any name is available to the partners for their partnership firm. The government does not have any pre-established guidelines for the company’s name. The only thing to keep in mind is that the chosen name cannot be similar to the name of another business or have any connection to the federal or state government.
- Partners’ Agency Through Mutuality:
This means that the actions of the other partners will bind each partner.As a result, partners in a mutual agency act as the principals or agents of each other.
Minor:A minor cannot be made a legal business partner or added to a contract.However, if necessary, a minor is included in the partnership to share in profits and avoid liability in the event of a loss.
- Information about the investment:
One of the most important decisions needs to be carefully made here.The deed must specify how much capital each partner will invest, how profits and losses are divided, and what happens to one or more partners when they retire.
The specifics of every change that is anticipated to occur with the introduction of the new business partners must also be stated in the deed.It also includes any changes to the company’s registered address information.
- Registration:
The process of registration is not necessary. The government, on the other hand, suggests that the deed be recorded. The partners will be able to file lawsuits against one another or on behalf of the partnership firm if the deed is registered.
When the deed is signed by all partners and attested, the sole proprietorship is dissolved. Additionally, the partnership deed takes effect.
Click here to know more: How to register partnership firm
Points to Consider When Drafting a Partnership Deed
The following points must be taken into consideration by the partners when drafting a partnership deed:
* Details like the name of the business and where it is run;
* the length of the partnership;
* the profit and loss shares of each partnership within the business;
* the details of business management;
* the agreed-upon principles of the partnership;
* the total number of partners and employees employed by each partner;
* the details of how to raise future capital; the distribution of partners’ work within the business; the obligations of partners in the partnership firm; bank account information; the details of partners’ withdrawals (if any);
* the details of the business account system; the ownership of
The main characteristics of a partnership
When a sole proprietorship is converted into a partnership, the structure will change. Unless you run a banking company, in which case you can only have 10 partners, a partnership firm can have no more than 20 partners. Unless otherwise stipulated in the partnership agreement, each partner has effective and equal control over the business’s operations and shares profits equally. Without the consent of the other partners, a partner cannot transfer their interest to others.
However, the partnership firm’s lifespan is limited. Legally, a company can be dissolved by the government in the event of retirement, insaneness, bankruptcy, or partner death.
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