Proprietorship firm registration means a firm that is owned and control by a sole member. Under a proprietorship firm, there is no separate legal entity between the owner and the property of the firm. The sole owner of the property enjoys all the profits and suffers all the losses of the firm. The liability of the owner is unlimited, meaning that when business profits are not sufficient to set off all the losses in the business, then the owner's personal property is used for setting off the losses. Under a proprietorship firm's registration, there is a minimum obligation of regulatory compliance for starting and running the firm.

The establishment of a partnership firm's registration requires no extensive legal formalities. It is easy to set up a partnership firm where two or more people can work for their mutual benefit. In a partnership firm, partners have unlimited liability. Therefore, if the profit of the firm is not sufficient to settle their debts, then they are liable to pay from their assets. Filing an annual return with the registrar does not require registration of a partnership firm. 

Conversion of Proprietorship to Partnership

As the legal forms of both types of entities are different, so, PAN number, GST Number, Bank Accounts of both entities will always be different from each other. PAN of the person owing proprietorship firm serves itself as PAN of such firm. However, in a partnership firm, the PAN of the firm differs from the PAN of partners.

So, for the conversion of the Proprietorship firm into a Partnership firm, first and foremost, it is required to incorporate a partnership firm and then provide for PAN, GST number, Bank accounts of the partnership.

Drafting of Partnership Deed

The partnership deed of a firm marks the beginning of the conversion of a sole proprietorship into a partnership firm.

Declaration of Transfer:

The deed, in this case, would differ from a general partnership deed, as it would also make various references to the proprietorship and declare that it has converted to the partnership firm.

Important Inclusions:

The required details are the date of establishment of the sole proprietorship, the proprietor's name, the nature of the business, and other information, such as VAT and Service Tax registration requiring Tax Identification Number and Service Tax number.

Date of Starting:

The deed would also incorporate the date when the partnership commences and the induction of partner(s) into the partnership firm.

Investment Details:

The deed must state how much capital will be invested by each partner, and how will the distribution of profits and losses take place, and precisely state what will happen in case of the partner's retirement for some reason.

The deed must include all the changes that will occur on account of the introduction of the new business partners. It must incorporate even a minor change in the registered address of the firm.

Registration:

Registration is not a mandatory procedure. However, it is recommended, in some cases, for the firm to register the deed. Registration enables the partnership to file suit and the partners to sue the other partners.

The deed, once signed by each partner on stamp paper, the sole proprietorship stands dissolved, and the partnership deed comes into effect. Alternately, it could mention a date on which the partnership will commence.

 This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.