1) The partnership concern should be taken over as a going concern with all assets and liabilities on date being assumed by the company taking over. 2) The existing partners should hold >50% (say at least 51%) of the voting shares of the new company in the same ratio as per their shares in the partnership firm. 3) No sale or transfer of these shares for the next 5 years. 4) No dilution of the percentage of these shares in the next 5 years. If the paid up capital is increased, the shares of these partners should also be increased so that they are always >50% for the 5 year period from transfer. 5) Other than shares in the new company, the partners should not receive any other compensation.
This is most important if there is transfer of movable / immovable property involved upon the new company taking over. You have to calculate the amount of capital gain on the transaction of transfer but you will not be paying capital gain tax at the hands of firm or partners.
However, if you are not complying with conditions above and the shares are transferred or diluted within the 5 year period, the capital gain that was not taxed to the firm will be taxed in the year of transfer / dilution of shares in the HAND OF THE COMPANY AS PROFIT / GAINS FROM BUSINESS.
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