Conversion of proprietory firm into parnership firm

KHUMESH (Querist) 10 April 2013 This query is : Resolved
Dear Sir,

The old Proprietory firm( Minerals buisness) whose TIN nos. was expired was transferred to another Proprietor recently. But we want to change it into Partnership firm so waht will be procedure to done

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CA Ayush Agrawal (Expert) 10 April 2013
A Proprietorship concern can be converted into the a partnership following the below procedure:
1) Minimum 2 members(partners) to be there to form a partnership
2) By mutual understandings of the partners a deed as to be prepared as per Indian Partnership Act, 1932
3) The partership can be registered under the Indian Partnership Act, 1932
4) If your proprietory concern is registered under various act(s) like Sales Tax, Service Tax or other, then concerned forms to be submitted accordingly to change the status of your firm/business.
5) A seperate PAN has be obtained by the Income Tax Department and accordingly the IT Returns has be to filed. And after conversion to partnership the assets & liabilities of the firm of proprietory concern can be transferred to the firm's name.

It will not amt to transfer of assets if prop. will hold more than 51% of share in partnership firm under income tax act.

Adv k . mahesh (Expert) 10 April 2013
once you change means your chance will be shared

A sole proprietorship concern is a business owned by a single person, there is no legal distinction between you and your business.

You can carry on business in any name and style. It can be set up easily and in expensively as there is no formal requirement for incorporation

As a sole proprietor you don’t have to make any legal documents to begin your business except of course to get such permissions and compliance of such laws which are necessary for the type of business you carry on.

The proprietor realizes all the profits, bears all the losses, and incurs all the liabilities of the business.The personal liability of the proprietor towards the creditors and lenders is unlimited.

once you want to share the liability and share to partners

i) More than one person at least two and not more then twenty.
ii) Existence of a business.
iii) Existence of the idea of making profit.
iv) Existence of an agreement between all partners with the object of sharing profits.
v) Business being carried out by all or by any of them acting for all.

A partnership has to be registered with the Registrar of Firms before it can start operations and the Partners have to enter into a Partnership Deed which is an agreement laying down the terms and conditions between the partners.

a prior paper notification has to be given changing of name and new partners to the business