Patnership firm converted in Chapter IX Company

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Dipti Gosar (Querist)
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03 March 2010 Where a firm is succeeded by a company in the business carried on by it as a result of which the firm sells or otherwise transfers any capital asset or intangible asset to the company will not be transfer :

Provided that -(b) All the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of succession; and

(d) The aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their share holding continues to be as such for a period of five years from the date of the succession;

Here firm is converted in company as chapter IX co.There should be minimum 7 subscribers to form co. under chapter IX.

As per income tax, one condition is all the partners of the firm become the shareholders of Co. on the date of succession. and other is partners who become shareholder must hold at least 50% till the expiry of 5 years .

My question is that whether it is compulsory that all 7 shareholders should hold the shares till five years. if any shareholder wants to transfer his share to exising shareholder or to new person he can do so or not provided due care should be taken that original partners should hold at least 50% voting rights.

Nilesh Shah

Nilesh Shah (Expert)
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04 March 2010 Nilesh Shah Writes:

It is not necessary that all the 7 erstwhile share holders should continue as share holder for the first 5 years of the Company.

The only requirement is that erstwhile partners should continue to hold not less than 50% of the shares for the first 5 years.

All the shareholders can off load part of their share holding in such a way that they still continue to hold not less than 50% of the share capital.

Six share holders can sell their entire share holding, yet the seventh continues to hold not less than 50% of the shares.

Further issue of shares to non share holders can take place in such a manner that of the expanded total equity not less than 50% is still held by the 7 share holders.

Sincerely,

Nilesh Shah