I will Win One Day (Proprietor) 10 December 2010

Conversion of Partnership Firm to a Company

As we are know there are two methods of converting a Partnership firm into Pvt Limited company.

1) One is formation of Private Limited Company, which inturn acquires the partnership firm

2) Conversion of Partnership Firm as per provisions of Part IX, of the companies Act.

My question are

1) whether capital gain tax exempt in both the above cases or only in case 2

2) Whether minimum number of partners need to be 7 for converting partnership firm into private limited company under provisions of Part IX, of companies Act.

Reply Follow

3 Replies

Vineet (Director) 24 December 2010

1. Capital gain exempted under part IX conversion as it is merely change in constitution. acquisition of firm by company may be a doubtful case as the word mentioned in clause (xiii) section 48 is succession which is different from words "sell or otherwise transfer" mentioned in respect of succession of propreitorship business by company in clause (Xiv).

2. As per provisions of companies Act, yes, you need 7 partners. However, I fail to understand why as a closely held private company needs only 2 shareholders.

Asha Pole (Legal) 04 January 2011

Vineet ji, Incase if you find the answer to your query about the variation of partners under the part IX, Please do share even I am inquisitive to know.

Vineet (Director) 08 January 2011

Sorry, could not find any answer to the discrepency. Section 565(1)(b) of Companies Act, 1956 clearly stipulates minimum number of members to be 7 for a company to be registered under part IX.

While other section put a restriction of 2 memebers for Private Limited Company. In Public Company, of course the minimum number is 7. Refer section 45 of Companies Act.