proprietorship/ partnership to company

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20 January 2011 what are the benifits to convert a business in proprietorship/ partnership to private limited company ?

Jayashree S Iyer

Jayashree S Iyer (Expert)
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20 January 2011 The main advantage of converting a proprietorshiup / partnership to a private limited company is that the liability of the members in a private company is limited. In Proprietorship / partnership, the proprietor / partners are no different from the proprietorship / firm and hence they are personally liable for the debts of the company and their personal assets can be attached to discharge the debts of the firm.

On the otherhand, a company on incorporation becomes a legal entity, capable of owning assets in its own name, capable of suing and being sued in its own name. Shareholders / members are the owners and the are liable only to the extent of share capital contributed by them. Their personal assets cannot be attached for the debts of the company.

Other benefits are
1) No. number of members viz., Proprietorship - 1
Firm - Minimum 2 Max. 20,
Private Company - Min. 2 Max. 50
Public Company - Min. 7 Max. No limits

So a company can have more number of members.

2) Transferability of shares - Shares are freely transferable in case of companies.

3) Perpetual Successetion - The death of a proprietor and a partner brings dissolution of the firm while company has a permanent existence. A death of a member does not affect its existence.

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