Advantages of converting Partnership into a Private Limited Company

In a partnership, the partners have unlimited liability for debts. In a private limited company, the liability of the members (shareholders) is limited to the amount they have paid for their shares. If the company is liquidated, the members cannot be asked to contribute any more money to the company. It is the liability of the members which is limited, not the liability of the company. Also, there may be tax advantages in converting - the profits of a partnership are taxed on the profits taken out by the partners. They are taxed as individuals. A company pays corporation tax and dividends may be a tax efficient way of distributing profits. A limited company may also be a better way of conducting business if the owners want to incentivise employees - employees can be given shares (there are tax beneficial ways of achieving this). This is easy to achieve with a company but tricky/ impractical in a partnership. A limited company structure also allows an easier 'exit' route - shares can be sold to new owners quite easily. In terms of management, it can be easier to manage a company. A partnership can often be difficult to manage - everyone can want a say.

Other advantages of private limited company include:

a) Shareholders have limited liability. As a result more people are prepared to risk their money, than partnership.

b) More capital can be raised as there is no limit on the number of shareholders.

c) Control of the company cannot be lost to outsiders. Shares can only be sold to new members if all shareholders agree.

d) The business will continue even if one of the owners dies. In this case, shares will be transferred to another owner