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Unit 14: Restructuring: Conversion and Slump Sale

(iv) the partners’ aggregate shareholding in the company is not less than 50% of the total voting Notes
power in the company and their shareholding should continue to remain so for a period of
5 years from the date of succession – Section 47(xiii).

Example: In case of carry forward of loss and unabsorbed depreciation with respect to

reorganization of business: If a firm or a proprietary concern is succeeded by a company fulfi lling
the conditions laid down in sections 47(xiii) and 47(xiv), then the accumulated loss and the
unabsorbed depreciation of the predecessor firm or the proprietary concern shall be allowed to

be carried forward and set off by the successor company.
If any of the conditions laid down in clause (xiii) or clause (xiv) are not complied with in any
subsequent year, the set-off of loss or allowance for depreciation made in any previous year in
the hands of the successor company shall be deemed to be the income of the company chargeable
to tax in the year in which such conditions are not complied with. If the transfer is on a going

concern basis, even though no specific exemption is spelt out, the firm shall not be taxable since
there can be no inference of a sale of any specific item comprised therein.

Task Will the fi rm be liable to pay tax on depreciable assets?

14.2.1 Advantages of Conversion

Following are the advantages of conversion of partnership firm into company:

1. All the assets and liabilities of the firm immediately before the conversion become the
assets and liabilities of the company.

2. All movable and immovable properties of the firm automatically vest in the company. No
instrument of transfer is required to be executed and hence no stamp duty is required to be
paid.
3. No capital gains tax shall be charged on transfer of property from partnership fi rm to
company.
4. The goodwill of the partnership firm and its brand value is kept intact and continues to

enjoy the previous success story with a better legal recognition.
5. The accumulated loss and unabsorbed depreciation of partnership firm is deemed to be

loss/ depreciation of the successor company for the previous year in which conversion was
effected. Thus such loss can be carried for further eight years in the hands of the successor
company.

14.2.2 Requirements for Conversion

Following are the requirements of conversion of partnership firm into company:

1. Registered Partnership fi rm.
2. Minimum Share Capital shall be ` 100,000 (INR One Lac) for conversion into a Private
Limited Company.

3. Minimum Share Capital shall be ` 500,000 (INR five Lac) for conversion into a Public
Limited Co.
4. If the above requirement is not fulfi lled by the fi rm, then the Partnership deed should be
altered.

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