Conversion Of Partnership Into A Company

Posted: 2003-05-05 00:00:00+05:30 IST
Updated: May 05, 2003 at 0000 hrs IST

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: Corporatisa-tion is the need of the hour. The entire world is gradually drifting towards one global market without any trade barriers between the countries. A small organisation led by few partners cannot think of growth on large scale without corporatising itself. Corporatisation have their own advantages such as Limited Liability, Perpetual Succession, Transferability of shares Expansion, etc. Sections 565 to 581 prescribes the law and procedure for Companies authorised to Registrar under part IX Companies Act, 1956. Section 565 of the companies Act 1956 provides that any company formed in pursuance of any Act of Parliament other than Companies Act, consisting of seven or more members may at any time register itself under the Companies Act, either an unlimited company or as a company limited by shares or limited by guarantee.

Section 566 defines “ a joint-stock company “ to mean a company having a permanent paid up capital of fixed amount divided in to shares, also of fixed amount. Section 568 provides the documents to be delivered to Registrar companies for registration as per Part 1X of any company “not being a joint stock company” Clause (b) of section 568 refers to “ deed of partnership or other instruments constituting or regulating the company”. Section 575 of the Companies Act, provides that in part 1X conversion, the property “passes to and vests in” the company. Circular No. 5/99 dated 19-5-99 vide file 17/45/98. CLV and Press Release dated 5/8/99, clarified that, the Registrar of Companies will continue to Register Partnership Firms under Part IX of the Companies Act as Joint Stock Companies on satisfying the procedure and conditions. Accordingly, an existing Partnership Firm can be registered under the Companies Act. In a landmark Judgement of the Bombay High Court, in, CIT v M/S Texspin Engg. & Mfg. Works (ITA no 222of 2001 dated 5-3-2003)(unreported) after considering the provisions of Companies Act, provisions of income tax relating to capital gains and relying on the ratio of Malbar Fisheries Company v CIT (1979) 120 ITR 49 (SC), CIT Vs. George Henderson & Co Ltd (1967) 66 ITR 622 (SC), CIT Vs. Gillanders Arbuthnot & Co (1973) 87 ITR 407 (SC), held that, when a firm register as company, as per the procedure prescribed under part IX of the companies Act no capital gain tax arise to the firm. When a partnership firm is treated as limited company, under part...