Proprietorship to Partnership

Whereas most firms begin as sole proprietorships, one can always change the business structure by looking at the advantages of forming a partnership and adding a partner. A partner may be required to boost efficiency and function as a catalyst for the current business's rapid growth, particularly when operations reach specific esteemed levels. As the number of partners grows, the amount of effort and capital put into the business propels it forward. The business will likely have to go through procedural formalities to convert from an unorganized business structure to a partnership firm. When a business is changed to a partnership, all of the assets, obligations, and rights that come with it are transferred to the partnership firm with the partners' approval.

Converting of a proprietorship to a partnership

Drafting of Partnership Deed

The first step in converting a sole proprietorship to a partnership is to prepare your firm partnership deed.

Transfer Declaration

In this scenario, the agreement would differ from a normal partnership deed in that it would make multiple references to the proprietorship business and proclaim that it had been transferred to the partnership firm.

Important Points to Remember

The date of formation of the Proprietorship include the name of proprietor, type of business and any other detail such as GST registration.

Starting Date

The agreement would also include the start date of the partnership and the induction of the first partner or partners into the firm.

Information on the investment

The agreement must specify how much capital each partner will invest, how profits and losses will be shared, and what will happen if one of the partners retires for whatever reason and specify some other relevant condition of partnership.

All of the changes that will occur as a result of the entry of new business partners must be stated in the deed. Even a change in the firm's registration address should be noted.

Documents Required

• Passport Size Photograph

• PAN Card

• ID Proof (any one)

• Aadhar Card/Voter ID /Driving License /Passport

• Address Proof

• Bank Statement/Electricity Bill /Telephone Bill / Mobile Bill

Documents for Registered Office Address

• If Property Owned by Partners

• Sale Deed of Property

• NOC from the Owner (format given by our company)

If Rented Property

• Rent Agreement

• NOC from the Owner (format given by our company)

Details about the Sole Proprietors Business

If the proprietorship firm is licensed under GST or has secured any other registrations, then copy of existing registration certificate.

Creating a Partnership Deed, there are a few things to keep in mind

• Action such as the firm name and operating locations.

• The duration of the partnership if limited period partnership firm.

• Details about each partnership's profit and loss shares within the firm.

• The details of business management.

• Partnership principles that have been agreed upon.

• Details about each partner's total number of partners.

• Provision and specifics on future capital raising.

• Within the firm, partners and their spread work.

• Members of the partnership firm and their responsibilities.

• Details of bank account.

• Information about partners' withdrawals (if any).

• Ownership information for a business location.

• Details on how goodwill is divided in the event of a partnership breakup.

• At the time of dissolution, assets and liabilities are distributed among partners.

• Provisions for bringing new partners in or admitting them.

• Details about the partnership's ownership transfer or status following the death or withdrawal of one of the partners.

• Within the business, there is a provision for resolving partner disputes.

The advantages of forming a partnership firm are as follows

• Shared responsibility and ownership among partners.

• Legal compliance is lesser.

• Easy to establish.

• Fund raising may be simpler with more owners.

• Profits go straight into partners' pockets, allowing for easier tax reporting.

• Partners can merge their individual strengths to enhance each other and strengthen the partnership.


On the other hand, PAN is not the same as the PAN of partners in a partnership. So, to convert a proprietorship firm into a partnership firm, you must first establish a partnership firm and then apply for PAN, GST Registration and bank accounts for the partnership firm.

An individual must be a major (above the age of 18) and not be legally prohibited from entering into a contract to be eligible to be a partner.

A partnership must have at least 2 partners. A partnership firm can have up to 10 partners in the banking industry, while any other business can have up to 20.

Certainly not. If the partnership deed creates, transfers, or affects an immovable property interest. The partners' rights individually or against outsiders cannot be enforced in a court of law unless the Registrar approves the partnership firm.

The partners' first amount of cash or kind to establish the business is referred to as capital. There are no minimum capital requirements for partners. Each partner does not have to contribute equally to the capital. The parties' agreement determines the contribution.