A general partnership cannot be converted directly into an incorporated company. To convert a general partnership into an incorporated company, you would need to dissolve the existing partnership in accordance with your partnership agreement or the Partnership Act 1890 (‘PA 1890’) or you could transfer the partnership business to an existing/new incorporated company.
Method 1: Dissolution of a general partnership
Dissolution of a general partnership occurs when the partnership relationship terminates. A general dissolution is required for the winding up of the business and its assets. Once the winding up is complete and the creditors and other liabilities have taken their share, the remaining assets are distributed among the entitled partners and the partnership is dissolved.
Methods of general dissolution
- Unanimous agreement (s.19 PA 1890).
- The exercise of an express power to dissolve the partnership agreement.
- The occurrence of an event specified in the PA 1890 (i.e. expiration of fixed term, bankruptcy, death, unlawful activity, etc…).
- A court order.
Method 2: Sale of the Partnership’s business
The partners in the partnership can also form a new company and transfer the assets from the partnership to an existing/new incorporated company. When the company purchases the business from the partnership, it will need to comply with the usual company formalities noted in the Companies Act 2006 i.e. filing returns with Companies House, maintaining company records and complying with set procedures.
The sale of the partnership’s business will become binding under a sale agreement. Key provisions should be included in the agreement to ensure that the new shareholders obtain all their assets from the partnership and maximum protection from present or future liabilities.
Forming a new incorporated company
If the existing partners in the partnership opt to incorporate a new company – where they will be the directors and shareholders – they should take the following points into consideration:
- A suitable company name will need to be selected and registered at Companies House, and the requirements must be adhered to.
- The company’s Articles of Association should be drafted either using model articles or amending them to meet the needs of the new company.
- A shareholder’s agreement will be the equivalent document of the former partnership agreement which will set out the powers of the shareholders and how the company will be managed.
- Director’s service contracts should be drafted, detailing the term of service and any other miscellaneous terms.
- Any agreements with third parties will need to be novated as the partnership will cease to exist and the new company must be made party to those agreements.
A certificate of incorporation will be provided by Companies House once the company has been registered. This document will be used as proof of the company’s incorporation and legal personality.
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