A Sole Proprietorship is usually the favored choice of
organization for small businesses. A proprietorship is simple to start and
progress. It is also not compulsory to register a proprietorship.
Corpseed said, As the name implies, a sole proprietorship
has a single owner. All incomes and profits of the enterprise belong to that of
a single person. It also has endless liability. In the case of losses, the
proprietor would be liable to settle it out of his/her personal assets as well.
A Sole proprietorship may indeed be perfect for small
businesses including limited operations and budgets. It is also not challenging
to manage. However, the simple design of the sole proprietorship firm also does
not allow for higher growth and expansion. It would not be ideal to produce in
higher investment from third parties because ownership is authorized limited to
one person. There may not be limitations in selecting outsiders as employees,
but there would not be a higher degree of accountability that co-ownership
alone can provide. Thus a proprietor may be preferred to explore other
opportunities to bring in fresh ideas, approaches, and capital by changing the
type of business into a partnership.
The profits starting from the business can be divided among
the partners according to a previously accepted ratio based on the capital
invested or evenly. A partnership would great than a sole proprietorship in
case the firm is growing. It would be ideal to develop by introducing fresh capital
and innovative plans by new partners. Collective ownership also appears in
combined decision making which would be more useful than individual decisions.
Achievement of plans can also happen better with increased strengths and
expenses.
Procedure For Conversion
Proprietorship Into A Partnership
Partnership Deed
Drafting of the Partnership Deed would be the primary step
in the growth of a sole proprietorship into a partnership firm. The most
important addition in the deed should be the explanation about the sole
proprietorship which is being transformed into a partnership by combining more
partners and bringing in investment. Care should be taken to enter the details
of the capital invested by each partner, salaries and shares in profits to be
paid to partners, rate of interest on the capital, profit-sharing device, and
duties in case of losses. The procedure for extra admission and removal of
partners should be given onward with the procedure to dissolve the partnership.
There should be no reason for the uncertainty that may lead to future
discussions.
Features To Be
Included About The Sole Proprietorship
The following details may be included, like date of creation
of the sole proprietorship, the identity of the proprietor, the address where
the company exists, the type of business, and other important features such as
VAT and Service Tax registration.
Registration
Registration of a Partnership is not a compulsory procedure.
However, it is recommended because of the enhanced legal security it offers. It
would be more comfortable for a registered firm to file a lawsuit against third
parties in the discussion. The rights of the partners also would be safeguarded
more satisfying by empowering suits opposite any partner who acts against the
interests of the firm.
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