Due to ill health, my Dad wants to transfer everything he owns to his 2 sons. The properties on his name are being done through Gift Deed. My question is about his ownership in companies. One of them is a PROPRIETORSHIP with only Dad as owner, which other than operating a factory also has various properties owned by it. Similarly, there is a PARTNERSHIP firm with father and 2 sons are equal partners. Is there any way to gift his ownership to his sons (similar to gift deed in properties). What is the most cost-effective way to get the transfer done? If there is no gift deed then can we convert these companies to private limited companies or something? What is the procedure? What kind of deed is to be made in both these cases? Final question is that there is also a PRIVATE LIMITE COMPANY with father and 2 sons holding equal shares. How do we do the transfer here as well
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In the case of Partnership, register or create a reconsecuted partnership deed in favour of two sons. In the case of proprietorship, change the ownership from all deeds (Bank, rent agreements) by executing by a settlement deed.
In the case of company make a resignation letter from the company and transfer your fathers share to both sons as per his wish and file necessary application for transfer the share before Registrar of company with help of Charted accountant or company secretary
Thanks for the reply, In case of a settlement deed for Proprietorship what are the tax implications, if any? (Is there any stamp duty for properties, and any other taxes). On adding the names of the sons, will it then become a partnership deed? Can a Proprietorship be converted into a partnership by just adding the names of the sons? Please let me know of all possible options for this problem. For Reconstituted Partnership deed will it be a Retirement come partnership deed or something else? Can this partnership be then registered? Please be as elaborate as possible in your answer. The objective is to save as much tax as possible and get it done
1) your father can execute sale deed for transfer of assets and liabilities of sole proprietary concern by father in name of 2 sons
2) the licence can be transferred in your name on execution of sale deed
3) in partnership firm your father can retire as partner of the firm . deed of retirement can be executed
4) in alternative father can execute gift deed for transferring his share capital in favour of 2 sons
1. Execution and registration of Gift Deed will attract stamp duty,
2. it will be prudent on the part of your father to convert his proprietorship firm in to a a Partnership Firm inducting you as another partner and after some he can resign from the partnership firm which will be automatically converted to proprietorship firm. The partnership Agreement shall have to be drafted keeping in mind the ultimate objective of forming the partnership firm,
3. For private Limited Company, you will require more share holders than just father and two sons.
1. Convert the Proprietorship Firm to a Partnership Firm by executing a partnership agreement keeping retirement/resignation clause and also a clause that in case of any retirement/resignation, the said partnership firm will be converted to a proprietorship firm with the sole remaining partner,
2. Register the Partnership Deed accordingly.
If a business is owned and operated as his own business by an individual without having created a separate legal entity for the business. then he is the sole proprietor.
If he wishes wish to sell or transfer the business to another person, there are some steps to be followed to ensure that the transfer is accomplished in a legal and binding manner.
They are;
Before selling or transferring the legal interest in the business, he must know exactly what those interests consist of first, inventory the business.
List out all assets and liabilities/debts, as well as any stock on hand, if applicable.
Execute title transfers or quitclaim deeds if applicable in favor of the new owner. If real property is part of the business, and the property owned is free of any liens or encumbrances, then execute a quitclaim deed to effectuate the transfer. Other property, such as vehicles or machinery, will also need to be transferred into the new owner's name by signing the title over.
Notify the secretary of state of the transfer of ownership if the business was operated under an assumed name or a "doing business as" name.
If a name other than the owner's name is used, most states require the proprietor to file an assumed-name certificate or similar filing. If the new owner plans to use the same name, the secretary of state should be notified.
Small Business > Business Models & Organizational Structure > Sole Proprietorship
How to Transfer Ownership of a Sole Proprietorship
by Renee Booker, studioD
If you own and operate your own business without having created a separate legal entity for the business, then you are a sole proprietor. Because a sole proprietorship does not require you to execute any legal documents to form, it can also be shut down without executing any legal documents. If, however, you wish to sell or transfer the business to another person, there are some steps you should take to ensure that the transfer is accomplished in a legal and binding manner.
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Step 1
Inventory your business. Before you can sell or transfer your legal interest in the business, you must know exactly what those interests consist of first. List all your assets and debts as well as any stock on hand if applicable.
Step 2
Create a sales contract if you are selling the business. A contract to sell a sole proprietorship can be as simple, or complicated, as you choose to make it. At its most basic, it needs to list what you are offering to sell to the buyer, the total purchase price and the payment terms. Sample contracts can be found online or at a local stationary store.
Step 3
Execute title transfers or quitclaim deeds if applicable in favor of the new owner. If real property is part of the business, and you own the property free of any liens or encumbrances, then you may simply execute a quitclaim deed to effectuate the transfer. Other property, such as vehicles or machinery, will also need to be transferred into the new owner's name by signing the title over.
Notify the Registrar of companies about the transfer of ownership if registered with ROC. Although sole proprietorships are not required to file anything to become a legal business entity, it may be required to register the company as per law. If the new owner plans to use the same name, the ROC should be notified.
If your sole proprietorship has significant assets or value, consider consulting with an attorney to prepare the sales contract.
Even if you are simply transferring ownership to a family member without an actual sale, a contract is still a good idea, as the new owner will have an official document showing ownership.
Debts of a sole proprietorship are actually debts of the individual owner and are not transferable to a new owner. If the business has debts that will not be paid in full prior to the transfer, discuss with the creditor whether the new owner may assume the debt before agreeing to the sale or transfer.
If your proprietary concern is registered under various act(s) like Sales Tax, Service Tax or other, then concerned forms to be submitted accordingly to change the status of your firm/business.
A Proprietorship concern can be converted into a partnership firm by following certain procedures.
Minimum 2 members(partners) to be there to form a partnership
By mutual understandings of the partners a deed as to be prepared as per Indian Partnership Act, 1932.
Registration is not a mandatory procedure, however, it is recommended that the firm goes for registration because it gives them certain legal benefits.
All proposed owners must contribute to and agree with this document to form an official partnership.
A separate PAN has be obtained by the Income Tax Department and accordingly the IT Returns has be to filed. And after conversion to partnership the assets & liabilities of the firm of proprietary concern can be transferred to the firm's name.
For Reconstituted Partnership deed will it be a Retirement come partnership deed or something else? Can this partnership be then registered?
All other subsequent business of the partnership firm may be included in the articles of association or the memorandum of association of the partnership firm.
As far as the tax exemptions are concerned the company's auditor shall give you an updated version by guiding you about the modes for getting tax exemption.
You can transfer it by drawing up a memorandum of transfer. Once he decides to transfer his business he will have to surrender his registration certificate under Service Tax Act, close down his bank account, square up outside liabilities and assets, whereafter you will be required to open a fresh bank account as proprietor, apply afresh for registration under Service Tax Act.
