When an established partnership business is incorporated, that is turned into a limited company (nearly always a company limited by shares), the proper procedure is for the new limited company to be registered, a date chosen for the transfer of the business, and then for the partners to enter into a contract with the new company for all (or some) of the assets of the business to be transferred to the company in return for shares in it. The partners will then have limited liability in respect of all transactions that take place after the date of the transfer, but will remain personally liable for any debts incurred as partners before such date.
E.g. If the existing business has assets worth £10,000 and has two equal partners, the assets will be listed in a schedule to the contract and, typically, transferred to the company in return for 10,000 £1 shares 5,000 of which are issued to each of the partners.
From an accounting point of view the most convenient date for the transfer will usually be at the end of the financial year of the existing business so that accounts can be drawn up for whole years and the partnership accountant should be consulted on this matter..
An alternative way of obtaining limited liability would be for the partnership to be converted to a limited liability partnership (LLP).
The provisions of the existing partnership agreement will no longer apply to the business once it has become a company and appropriate provisions must be included in the new company's articles of association and/or a shareholders' agreement may be needed.
Changing from a partnership to a limited company will have tax consequences both in respect of the transfer and the way the business is taxed in the future. We cannot give tax advice and we strongly recommend that this course is not undertaken without proper accountancy advice.
The Company Law Solutions service will include:
Most conversions of this type will be covered by our benchmark price for this service. Please see our prices guide. The registration of the company will include our standard articles of association. If any special requirements are provided there may be additional costs, which will be advised once detailed instructions are received..