Benefits of conversion in company

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Mahesh sharma (Querist)

04 May 2013 Dear sir
Please inform that what are the benefit of converting a partnership firm into private limited company

Ankur Garg

Ankur Garg (Expert)

04 May 2013 In a partnership, the partners have unlimited liability for debts. Importantly, this is on a joint and several liability basis (ie any one partner is liable for the whole of the debt, with a right of relief against the other partners).

In a private limited company, the liability of the members (shareholders) is limited to the amount they have paid for their shares. If the company is liquidated, the members cannot be asked to contribute any more money to the company.

It is the liability of the members which is limited, not the liability of the company.

Also, there may be tax advantages in converting - the profits of a partnership are taxed on the profits taken out by the partners. They are taxed as individuals. A company pays corporation tax and dividends may be a tax efficient way of distributing profits.

A limited company may also be a better way of conducting business if the owners want to incentivise employees - employees can be given shares (there are tax beneficial ways of achieving this). This is easy to achieve with a company but tricky/ impractical in a partnership.

A limited company structure also allows an easier 'exit' route - shares can be sold to new owners quite easily.

In terms of management, it can be easier to manage a company. A partnership can often be difficult to manage - everyone can want a say.

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