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Private limited company as partner in a partnership firm

Mr. Mishra (Others) (95 Points)

08 January 2017

can an Indian "private limited investment company" become a "partner" (i.e., holding company) in a "partnership firm" in India ?

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7 Replies

Mr. Mishra (Others) (95 Points)
Replied 09 January 2017

and;

Iam not talking about LLP (limited liability partnership) here..

Iam talking about partnership-firm [established under the Indian partnership act 1932 section 58(1)]

Kumud prasad (Practicing CS) (216 Points)
Replied 09 January 2017

Mr. Mishra

company is a juristic person and therefore can become a partner in a partnership firm, if it is authorized to do so by its objects.

1 Like

CA Pradeep Garg (CA & CS) (1969 Points)
Replied 30 January 2017

Sir, the actual issue where a private limited company holds majority share in capital and /or profit of one or more partnership firms is

1 whether the firm is required to maintain accounts and get it audited compulsorily as the company ( its holding co is required to get books audited in every case even if it does not have any business of its own)?

2 whether the books of firm are required to be consolidated with its major partner being a company??

3 since share of profit of firm is tax free in the hands of partner be it company or individual, a company can earn tax free profits by investing in various firms?? on the other hand a company earning dividends is again liable tax??

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Mr. Mishra (Others) (95 Points)
Replied 01 February 2017

Originally posted by : Pradeep Garg
	Sir, the actual issue where a private limited company holds majority share in capital and /or profit of one or more partnership firms is 1 whether the firm is required to maintain accounts and get it audited compulsorily as the company ( its holding co is required to get books audited in every case even if it does not have any business of its own)? 2 whether the books of firm are required to be consolidated with its major partner being a company?? 3 since share of profit of firm is tax free in the hands of partner be it company or individual, a company can earn tax free profits by investing in various firms?? on the other hand a company earning dividends is again liable tax??

i asked the "partnership members this question" , they said that the parnership-firm get's it's audit-report prepared every year (for the annual return purpose) - "Mr. Pradeep Garg, i hope you were talking about this audit-report ??"
i think this can be done & the partnership firm will have no objection in preparing/making cosolidated accounts (if it's needed as per law) after the private limited company become a partner in that partnership-firm.
So; by this third-point, you mean to say that the partnership-profit-share which the private limited company will recieve will be taxable (unlike the case of other individual-partner where he/she will cliam it as tax-free.) ?? if it is so by law then none of the two have any problem with it.

I HOPE I GOT ALL YOUR POINTS RIGHT ??

did i ?? or i missed something ??

CA Pradeep Garg (CA & CS) (1969 Points)
Replied 01 February 2017

Dear Mr. Mishra, my comment was about the loophole in prevailing law only, a partnership firm is not required to maintain books of accounts and to get it audited under partnership law. On the other hand a company is required to maintain books of accounts, follow various financial standards, disclosure and audit by qualified person under company law and tax audit of a firm under income tax law is limited to specified transactions only and firm may maintain its books in any manner it likes. My comment was if a company which is governed by extensive company law, can invest all its capital & loan funds in various partnership firms to earn tax free share in profits of firms without being liable to maintain and consolidate books of accounts of all its subsidiary firms under schedule III of companies act?? If so, has the provisions of company law not been compromised in a big way??

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Mr. Mishra (Others) (95 Points)
Replied 02 February 2017

Originally posted by : Pradeep Garg
	Dear Mr. Mishra, my comment was about the loophole in prevailing law only, ................................................................................. If so, has the provisions of company law not been compromised in a big way??

Thank You for your valuable comments.

(iam not an expert in english-language else; i would have appreciated your comments with more efficient words/sentences)

So; I think in this case, "the various loop-hole issues" will be staisfied if a private limited company becomes a partner in an "LLP" instead of a partnership firm ? isn't it ??

or there will still be some issues with "LLP" idea also ??

Mr. Mishra (Others) (95 Points)
Replied 11 February 2017

https://www.quora.com/Can-a-private-limited-company-enter-into-partnership-with-an-another-partnership-firm-in-India

https://www.icai.org/post.H T M L?post_id=12715

the above mentioned two links (external-link from "QUORA&ICAI" not from CAclubINDIA) contains the answer to this question as-well-as the few raised concerns.

THIS QUESTION CAN BE MARKED AS ANSWERED BY MODERATORS as i got the answer & also it's link is shared already for other users like me, who are looking for answers.