Many business people start their businesses as a Sole Proprietorship due to the low compliance requirements. As the business and the incomes grow, there is a need to separate the bank accounts and the tax filings of the Sole Proprietor and that of the business. To accomplish this separation a possible solution is to convert the Sole Proprietorship into a Private Limited Company.
To convert a Sole Proprietorship into a Private Limited Company, an agreement has to be executed between the Proprietorship and the Private Limited Company (once it is incorporated) for the sale of the business. Further, such Private Limited Company so incorporated must have “the takeover of a Sole Proprietorship Concern” as one of the objectives in its Memorandum of Association.
Conversion to Sole Proprietorship is done through Corporate Creators LLP.
After introduction of LLP Act in 2008, many Partnership Firms have started to convert their Partnership Firm to LLP. The reasons of conversion are self-evident such as ability to take unlimited number of partners, separate legal entity, limited liability and ease of ownership transfer. Because of these advantages of LLP over Partnership, LLP has become very popular amongst small and medium sized businesses.
The Partnership Firm which wants to convert itself to LLP must be registered under Indian Partnership Act, 1932. Unregistered Partnership Firm can’t be converted to LLP. LLP incorporated by conversion of Partnership Firm to LLP must have same partners as they were in the Partnership Firm.
Therefore it is suggested that the Partnership Firm should retire all the Partners who do not wish to be a part of LLP and if new partners are to be added, they should be added after the incorporation of LLP.