conversion of partnership firm into a private limited company

[AJIT Tiwary]

Dear Expert,

one of my client is going to conversion/takeover to/by a private limited company. firm make its valuation, my concern is that whether we allot the equity share at par or at a premium. as discuss with some one, one said that we need to take valuation of firm firstly and issue the share at premium and other said there is no need to take valuation of firm and equity share will be allotted on net asset basis. i need suggestion on that whether we issue equity share at par i.e net asset basis or at premium

further, if i allot the share at premium whether capital gain will be arises or not? and if i issue the share at premium then share premium will be reflected in reserve and surplus but what will be treatment in assets side.

pls suggest

AI Summary

Guidance on Converting Partnership to Private Company: Issuing Equity Shares at Par or Premium Under Section 47(xiii) A client is converting a partnership firm into a private limited company and seeks advice on whether to issue equity shares at par or at a premium. One opinion suggests valuing the firm first and issuing shares at a premium, while another suggests issuing shares based on net assets without valuation. Concerns include whether issuing at a premium would trigger capital gains and how the premium would be treated in financial statements. The response clarifies that shares can be issued at a premium, which becomes part of reserves, and outlines conditions under Section 47(xiii) of the Income Tax Act to avoid capital gains during conversion.