Change of ownership in sole proprietorship firm

This query is : Resolved

Aman Gupta (Querist)
Follow

05 December 2018 One of our clients want to change the ownership of proprietorship firm.Earlier the firm was managed by son and now due to some reasons the owner needs to be changed to father.Please guide the full process to be adopted for this change. Thanks in advance

Z (Expert)
Follow

06 December 2018 A Sole proprietor is not a separate legal entity in the eyes of the law. Therefore, all the business asset should be transferred in the name of the father. You may follow one of the three approaches for this purpose.

First, you may consider assigning values to the various assets and take them over at such values.

Second, you may consider a slump sale, that it take over the business for a lumpsum consideration without assigning the values to the individual assets. However, for the purposes of stamp duty, value of land or building, or both may be computed separated without specifically assigning their value in slump sale.

If you opt the second approach then you will have to comply with S.50B, which shall necessitate the involvement of a CA as his certificate would be required.

Considering that the proposed transferee is the father, who is a relative as per the definition of relative as assigned to explanation to S.56(2)(vii), which brings up the third approach, son can make a gift of various or all the business assets to the father. Capital assets would not be deemed to have been transferred by the virtue of S.47.

I would not recommend to gift the entire business, but would recommend to consider making gift deed for various business assets.

It must be noted that since this would lead to chage in the assessee, no carry forward of the lossess shall be allowed.