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Formation Agreement to Convert a Partnership into a Limited Company

Updated on: Jul 21st, 2021


5 min read

In this article, let us take a look at how to take a business partnership to the next level, and convert the business into a limited company. We will also understand the details required and the information vital to this transformation.

First of all, let us understand what a business partnership is. Any legal business relationship formed by the agreement of two or more individuals to carry out a business as co-owners of the company is called a business partnership. These co-owners (or partners) are individual investors in the company, and sometimes only a few of the partners work in the business.

In the context of an Indian business, there are three types of companies – public, private, and a one-person company. A business partnership can only be either for a private company or a public company. At this stage, let us see how to convert an existing business partnership into a limited company.

All the partners need to agree to form a company and then draft a company formation agreement. This is an official document, capturing all the information and details required to prove the partnership. This official document consists of:

  • Name and address of all the partners involved
  • Date of the agreement
  • Complete name and address of the business entity entering into the partnership
  • Details of purpose of business
  • Official agreement by all the partners to the formation of the partnership
  • Approval of all the partners for the name and purpose of the business
  • Details of the shares and dividend prices (if the company is going public)
  • Details of the partners’ share, job responsibilities, and designation in the company
  • Details of assets and liabilities in the company
  • Individual partners’ contribution (monetary and work-related contributions are recorded in actuality)
  • Accurate details of the initial investment raised by the partners and expenses incurred
  • Details of all the Board of Directors (Note: that there only can be 5 members of the Board of Directors)
  • Details regarding termination and dissolution of the company (if in future)
  • Details and signature of witnesses to this official agreement
  • Approval and signature of all the partners involved

This official agreement is legally valid in the court of law and every partner should retain a copy of this for further reference.

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Quick Summary

The article discusses how to convert a business partnership into a limited company by forming a company formation agreement. It includes required details such as partner information, purpose of business, shares, responsibilities, and more. Partners need to agree, and a formal process is followed legally. It explains the importance of the conversion and essential steps involved in the process.

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