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.