Convert Sole Proprietorship Firm into Partnership Firm

Today we are talking about how to convert sole proprietorship firm into partnership firm. A Sole Proprietorship may be simple to start, but it can restrict your growth in terms of business. As it is difficult for a single person to build a big business as you have to take care of the management of the business, business cost, and you also have to bear losses. you must consider getting a partner to help you manage the Business. But if you thought to add a partner to the business, can be difficult and will take a longer time, as you have to complete all legal formalities, then I would like to tell you that you have an option of converting sole proprietorship into partnership firm.Convert Sole Proprietorship Firm into Partnership Firm

A partnership firm requires a maximum of 20 partners and minimum of 2 partners. Each partner has active and equal control over the business and shares profits equally unless there is an agreement that states the ratio in which the profit will be shared or how much profit will be shared. No partner can, a Business decision without the consent or without discussing with the other partner. A partnership firm has a limited lifespan, as the firm will be dissolved on retirement, lunacy, bankruptcy or death of any partner.

By the above features, It might be clear to what partnership is and how it can be beneficial to you. So In this article, I will tell you about the procedure as to how you can convert proprietorship business into partnership Business.

Procedure for Conversion of Sole Proprietorship to Partnership

Drafting of Partnership Deed: The conversion process of a sole proprietorship into a partnership starts with the drafting of the partnership deed.The Partnership Deed created by the partners should be on a stamp paper in consonance with the Indian Stamp Act, and each partner should have a duplicate copy of the partnership deed.The points are to be kept in mind while forming a partnership deed:

  • Name and place of business.
  • Duration of the partnership.
  • Shares of each partnership in the profits and losses of the business.
  • The management of the business.
  • Nature of principal work agreed to be carried on in partnership.
  • The number of partners and initial capital employed by each one of them.
  • Provision and the manner for raising future capital, if required.
  • Work distribution, if any, of each of the partners.
  • The obligation of partners who are members of a partnership firm.
  • The operation of Bank Accounts.
  • Withdrawal by partners.
  • The accounting system of the business.
  • The partnership deed needs to disclose if business premises belongs to a partnership or any individual partner.
  • Division/Devolution of goodwill of the business in case of dissolution of a partnership.
  • Distribution of assets and liabilities amongst partners at the time of dissolution.
  • Provisions for bringing in or admitting new partners.
  • The impact on partnership firm in case of the death of the partner, whether his heirs will be admitted as a partner, or the partnership will continue to be in existence by the remaining partners, or it will be completely dissolved or closed down.
  • The Partnership ship deal should disclose remedy for solving disputes relating to a partnership if a dispute arises amongst the partners over business matters.

Agreement of the partnership deed: The partner should agree upon the terms and conditions laid in the partnership deed and they should have written the agreement and contract to operate a partnership firm.

Profit sharing ratio: This is one of the most indispensable points that is to be decided by the partners before getting into a partnership agreement. This ratio is enclosed in the partnership deed and if the partnership deed is mute about the profit sharing ratio, then the partners will share profits equally among themselves.Also, The Profit sharing ratio can be based on capital contribution of the partners in the organization

Partnership Firm Name: The partners are free to choose any name as they desire for their partnership firm, But The chosen name should  not be too identical or similar to the name of any existing Business organisation and The name must not contain any words which is considered to be inappropriate or unsuitable  by the Government of India or any State Government .

Registration: Registration is not a compulsory precondition. But, it is recommended to get partnership registered.As  If the partnership firm is registered, the partnership deed will be registered and a Registration Certificate will be issued by the Registrar of Firms. This enables the partnership to file suit and the partners to file suit against other partners in times of any dispute that may arise in The Business.also the sole proprietorship will be dissolved and the partnership deed comes into effect after you have registered partnership firm.


The Sole proprietorship firm is very easy to set up and run. You do not require to do a lot of paperwork to form this type of business. The sole proprietor is the sole person who will enjoy profits and will bare losses that occur in the Business. A sole proprietorship does not require you to have employees also you might recruit people or you can do business by yourself.

The Sole Proprietorship is ideal for small businesses and startups. Its characteristics have so many advantages but these advantages can sometimes become the disadvantage as sometimes it is hard to run a business alone that were getting a partner to help you in Business become very essential. That why it is recommended to convert your proprietorship firm into partnership firm.