Conversation of partnership firms into a Limited company

 (S R Patil)

Conversation of partnership firms into a Limited company

Introduction   := The partnership firms suffers from number of disadvantages -unlimited liability of partners, limited capital etc. To remove all such disadvantage of firm and to enjoy the benefits of company form, the big partnership firm is convinced into a limited company

Meaning of conversation

The conversation of a firm into a limited company means changing partnership from of organization to the joint stock company form.

Objective of conversation

1.To raise additional capital required for expansion of the existing business

2.To take the advantage of limited liability principal.

3. To enjoy status of separate legal entry.

4. To acquire better position in society.

Purchase consideration

 The partnership firms sells it's business to limited company at an agreed price.  This agreed price is called as purchase consideration. Purchase consideration may be defined as " The price paid by the purchasing company to partnership firm for taking over It's  business is known as purchase consideration.

Mode of payment

Generally purchasing company pays the purchase consideration in the form of its one shares, debenture and cash.

Method of calculating purchase consideration

1. Net asset value method - Net assets means excess of assets over liability.  Under this method purchase consideration is the agreed value of net assets taken over by the company. It is calculated as * total of agreed value of assets taken over by company  Less (-)Total of agreed value of liability taken over by company.

2. Net payment method - Under this method the total of payment made by the company in form of shares, debenture and cash to the firm is purchase consideration.  It is calculated as * payment made in shares + payment made in debenture +Cash paid

3. Lum-sum prise method -Under this method, price of each individual assets and liabilities is not determined separatkey. A Lum sum price is paid by the company for all assets and liabilities that are taken over. This price is given in the problem so we need not to calculate it.