Benefits of Conversion of a Firm Into A Pvt Ltd Co.,

Dear Sir,
Please clarify the following.
1.The Partners of a Firm can take the Profits after payment of Firm's Income Tax and it is exempted in their hands.
Where as the share holders of a firm can get Dividends only after payment of IT and Dividend tax.
What is the use of converting a firm into a Pvt Ltd co., other than going Public at a later date to raise the capital.
2. Can the firm revalue the assets before conversion and allot shares in the same proportion without capital gains.

3.What are the other benefits.

Regards,

V.S.Rajagopalan

Replies (1)

Point No. 1

In case of a firm, the remuneration paid to the partners is allowable to a certain extent only. But in case of a private company, the remuneration paid to directors has no cap under Income Tax Act. So if the company is a closely held company then rather than dividend, directors remuneration can be paid. This is just a tax aspect.

There are various other benefits like separate legal identity, limited liability of members (as against unlimited liability in partnership firm), etc.

 

Point No. 2

In case of conversion into a company, the firm can revaluate its assets.

 

Regards,

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