The document discusses various financial and tax planning decisions including capital structure decisions, dividend policy, bonus shares, capital gains, bond washing transactions, make or buy decisions, repair/replace decisions, and shutdown or continue decisions. It also discusses tax planning related to amalgamation or demerger of companies, conversion of firms to companies, and conversion of sole proprietorships to companies. Key considerations for various decisions are outlined relating to taxation.

1. Mr. Basavaraj M. Naik, Mcom, UGC NET, KSET
Faculty of Commerce
Rani Channamma University Belagavi
P. G. Centre, Jamkhandi

2. 
 Financial Decisions: Capital Structure Decisions;
Dividend Policy; Bonus Shares and Capital Gains;
 Bond Washing Transactions; Own or Lease of an Asset,
Installment or Hire Purchase, Make or Buy Decisions,
 Buying an Asset with Own Fund or Borrowed Fund and
Repair, Replace, Renewal or Renovation; Shutdown or
Continue: Tax Planning in respect of Amalgamation or
De-Merger of Companies,
 Conversion of a Firm into a Company; Conversion of Sole
Proprietorship into Company, Conversion of Company
into Limited Liability Partnership

3. 
Tax planning Relating to
capital Structure Decision

4. 

5. 

6. 

7. 

8. 

9. 

10. 

11. 

12. 

13. 

14. 

15. 

16. 

17. 

18. 
 When Bonus Shares are issued to the equity
shareholders, the value of the shares is not taxed as
dividend distributed. However, where redeemable
preference shares are issued as Bonus shares, on
their redemption, the amount shall be taxed as
dividend distributed.
TAX PLANNING THROUGH ISSUE OF BONUS
SHARES

19. 
 Where Bonus Shares are issued to the Preference
Shareholders, on their issue it is deemed to be
dividend and liable to tax.
 Expenses on issue of Bonus Shares is not allowed as
deduction since capital expenditure.

20. 
 The entire value earned from selling a capital asset is
considered as taxable income. ... Buildings, lands,
houses, vehicles, Mutual Funds, and jewelry are a
few examples of capital assets.
Capital Gains

21. 
 Investing in shares is quite risky, yet it is essential for
the health of the economy. Realising the importance
of investment in stock market and in order to
promote it, long term capital gains on listed equity
shares, on which STT is paid, is exempted from tax.

22. 
 Similarly, units of Equity oriented funds, which
invests majority of its funds in listed equity shares of
Indian Companies, are promoted. Long term capital
gains on units of equity oriented funds are exempted
from tax.
 Example: Units of Unit Trust of India (UTI)

23. 
 It is a device to avoid tax by high income group of
assesse by transferring securities to the low income
class of assesse on the eve of the due date of interest.
Bond Washing
Transactions

24. 

25. 

26. 

27. 

28. 
 Under hire purchase system, the seller agrees to sell the
article on the condition that the buyer shall pay the
purchase price through installments. The article is not
legally sold to the buyer in hire purchase system.
 The Installment system is almost similar to the hire
purchase system. The main difference between the two is
that in installment system, the buyer gets the ownership
rights as soon as the contract is signed with the seller. If
he makes any default in payment of any installment, the
seller can repossess the article only with the help of the
Court.
Instalment or Hire Purchase

29. 

30. 

31. 

32. 

33. 
Basically, the decision to make or buy is a costing
decision and is influenced by many factors are as
follows
 I. Availability of factors
 II. Investment required in fixed assets
 III. Availability of skilled and unskilled labour
 IV. Availability of suppliers
 V. Existence of idle capacity in organization
Tax Planning With
respect to make or buy.

34. 

35. 

I. Shut down or continue operations
 Sometime business is forced to shut down due to the
following reasons–
 a. Fall in demand
 b. financial problems
 c. Change in technology
 d. High rate of taxation
 e. Mismanagement
 f. Pressure of commercial banks

36. 
Following are the important points which are to be
considered by an assesse while taking Shut down and
continue decisions
1. Treatment of losses and unabsorbed depreciation
A. Business Loss.
If the business or profession has been discontinued loss, can
be carried forward and set-off against profits and gains of
business or profession.
B. Unabsorbed depreciation
i. It can be set off against income under any head
ii. Can be carried forward and off for indefinite period,
whether business is carried on or discontinued.
Tax provisions

37. 
 The loss can be set-off by the same person who has
suffered the loss.
 Withdrawal of certain deductions.
The following deductions will be withdrawn and liable
to tax in the year in which business is discontinued
a. Deduction under Section 33AB—-Tea Development
Account /Coffee Development Account.
b. Deduction under Section 115VT—Reserve for
Shipping Business.

38. 
 Due to a rise in regulatory policies for ease of doing business for
companies and announcement of a special reduction in
the corporate tax rate through the Taxation Laws (Amendment)
Ordinance, 2019, many leading entrepreneurs and firms are opting
to convert their partnership firm to company.
 While for new entrepreneurs company formation from scratch is a
simple company incorporation process with the Ministry of
Corporate Affairs (“MCA”), however for existing business owners
especially for the partnership firms proper migration requires a
great deal of professional experience and legal knowledge.
 Section 366 of the Companies Act, 2013 and the Companies
(Authorised to Register) Rules, 2014 guides about the eligibility,
restrictions, and perquisites essential for incorporation or
conversion of entities to the company in India.
Conversion of Partnership to Company –
Procedure, Rules & Tax Effect.

39. 
 This post gives you an overview of all regulatory
terms and procedures to undertake, for the
conversion of partnership firm to company consider
the aspects which are as follows:

40. 
 1. Prepare all necessary documents
 The following documents would essentially be required in the process:
 Partnership Registration Certificate (If registered with Registrar).
 Amended Partnership deed (After inclusion of a provision of conversion in
the deed).
 Written consent or no objection declaration from creditors and partners of
the firm.
 Copy of Income tax returns of Partnership for past years (Including the
latest return filed).
 Certification of Financial statements/tax returns from the auditor (if
required by Registrar of Companies or ‘ROC’)
 Copy of PAN/GST registrations.
 Proof of registered office of business (Electricity bill/ Rent agreement).

41. 
 2. Filing of forms
 The following forms have to be filed on MCA Portal to the concerned
Registrar of Companies (ROC) :
 Form URC- 1 ( Form required for conversion of any business form like
LLP/ Partnership firm to Company)
 Form URC – 2 (Form giving advertisement about registration/conversion
of the firm to the company)
 Form SPICe – 32 (Form for initiating company incorporation with the
registrar).
 Form SPICe – 33 (Form for filing proposed Memorandum of Association
of the Company )
 Form SPICe – 34 (Form for filling proposed Article of Association of the
Company).
 AGILE i.e., e –Form INC – 35 (Form for obtaining registration under
multiple regulations with single form (GST, ESIC, EPF).

42. 
 3. Procedure for conversion
 Take approval of partners and add a clause in the partnership
deed for the conversion of entity to other forms.
 Obtain written consent of partners/creditors for the conversion
of partnership.
 Submit advertisement to any popular daily newspaper to be
published in the English language and the vernacular language
in prescribed Form URC – 2.
 File form URC -2 with the registrar of firms in the prescribed
time frame of publication of the notice.
 Form URC -1 to be filed with ROC specifying all details of
partners, about their occupation, capital contribution, directors
to be appointed, passport details of partners and their interest
in other firms or body corporate.

43. 
 Obtain written consent of partners for approving partners’ appointments as
directors.
 Obtain Consent of the creditors of the partnership, if any.
 Obtain undertaking from the partners going to become directors to comply with
requirements of the Indian Stamp Act, 1899.
 Submit affidavit stating compliance of all Acts and regulations applicable to the
partnership by the partners.
 File form SPICe – 32 including INC-9 and DIR-2 declarations specifying the first
subscriber and directors details along with the proof of registered address of the
business .
 File SPICe – 33, 34 and AGILE with ROC duly filled and certified by the professionals
involved in the incorporation for compliance of all necessary steps as applicable.
 ROC after completion of all formalities after taking into consideration the filings
made, the objections made, the provision for creditors if any, resolution of objections
in the prescribed time period of 30 days of submission of application will approve
the conversion of partnership firm to company form and will grant the Incorporation
Certificate to the entity.

44. 
Conversion of Sole
Proprietorship into Company

45. 

46. 

47. 

48. 
 Section 56, Third Schedule and Fourth Schedule of LLP
Act- 2008
 A Private Limited Company or Unlisted Public Company
may convert into a Limited Liability Partnership in
accordance with the provisions of Section 56 and the
Third and Fourth Schedule of LLP Act, 2008.
 Eligibility of Conversion
 > There is no security interest in its assets subsisting or in
force at the time of application; and
 > The partners of the limited liability partnership to
which it converts comprise all the shareholders of the
company and no one else.
Legal Framework for Conversion of Company
into LLP

49. 
 Requirements for conversion of company into LLP
 > Every member of the company must agree with the decision of
conversion.
 > All the members become the partners of an LLP and no one else.
 > Not just the members, all the creditors of the company must also agree
with the conversion.
 > Under Companies Act, no prosecution should have been initiated
procedure to be followed.
 > All the pending forms and returns are required to be filled up to date
with the RoC.
 > No open (unsatisfied) charges should be pending against the company.
 > At least one balance sheet and annual return should have been filed by
the company after its incorporation.
 > The company should be having share capital.
 > The company should not be a Section 25 company/Section 8 Company
under Companies Act, 1956/2013.

50. 
 > Call for Board Meeting and pass Board Resolution for
the conversion of the company into LLP.
 > Take the Written consent of all the shareholders for
conversion of Company into LLP.
 > File application for name availability in web based form
‘RUN-LLP’ with the RoC. Attach the Board Resolution
and proposed object clause with the name availability
application.
 > Once the name is approved, execute all necessary
documents like consent, subscriber sheet etc. and file form
FiLLip and form 18 with the RoC.
Process for Conversion of
Company into LLP

51. 