Proprietorship firm ( Dont want to conversion)
This query is : Resolved
18 September 2025
Hi, I am running a prorietorship Firm. I want to introduce my son in my proprietorship firm. I am unable to understand how should i introduce him. shoule i make a profit sharing agreement or is any other way. i dont want to go for conversion of propreitorship. how should i introduce him please suggest me & need expert advice
18 September 2025
Options to Involve a Family Member
A sole proprietor may involve a family member (such as a son) in the business as an employee, manager, or by granting them the authority to represent or manage day-to-day operations.
The proprietor can compensate the son either by salary or through some form of incentive, such as a profit-sharing arrangement through a private agreement. However, this does not give the son any legal ownership or formal rights in the business.
The son’s involvement, role, and profit-sharing can be documented by a private agreement or even an affidavit, but this is for internal/family arrangement only and will not change the legal status of the firm.
A sole proprietor may involve a family member (such as a son) in the business as an employee, manager, or by granting them the authority to represent or manage day-to-day operations.
The proprietor can compensate the son either by salary or through some form of incentive, such as a profit-sharing arrangement through a private agreement. However, this does not give the son any legal ownership or formal rights in the business.
The son’s involvement, role, and profit-sharing can be documented by a private agreement or even an affidavit, but this is for internal/family arrangement only and will not change the legal status of the firm.
18 September 2025
Profit-Sharing Within a Proprietorship
You may prepare a simple profit-sharing agreement to pay your son a share of the profit; this is treated as a business expense or remuneration.
Such arrangements do not make your son a legal proprietor or partner; all assets, liabilities, rights, and legal status remain with the sole proprietor (yourself).
For tax purposes, any payment to a relative, including the son, should be made at fair market value for services actually rendered to the business, to avoid disallowance under Indian tax law.
You may prepare a simple profit-sharing agreement to pay your son a share of the profit; this is treated as a business expense or remuneration.
Such arrangements do not make your son a legal proprietor or partner; all assets, liabilities, rights, and legal status remain with the sole proprietor (yourself).
For tax purposes, any payment to a relative, including the son, should be made at fair market value for services actually rendered to the business, to avoid disallowance under Indian tax law.
18 September 2025
Otherwise, legal transfer of ownership (such as by gift, sale, or inheritance) is only possible when you want to fully transfer the business and not co-own it.
19 September 2025
Good Luck...
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