Convert Sole Proprietorship to Private Limited Company
Initially, when a business is established, the most preferred choice is a sole proprietorship structure because of its low compliance requirements. Once the business grows, it is essential to take steps to limit the liabilities and reduce the burden of compliance on a single person. The best way out over here is to convert proprietorship to private limited company. For the purpose of conversion of sole proprietor to a private limited company, it is necessary by the promoters of the company to indulge into an agreement which is to be made for selling the business. Further, such conversion from sole proprietorship to Private Limited Company must have clearly mentioned about “the takeover of a Sole Proprietorship Concern” as one of the objectives in its Memorandum of Association.
Benefits of Proprietorship to Private Limited Co. Conversion
Separate Legal Existence
The private limited company is a separate legal entity, and its existence is separate from its members This makes the business possible to own assets and enter into contracts in the name of the private limited company or sue a third party in case of a dispute. The members (Shareholders/Directors) of a company have no personal liability to the creditors of a company for the company’s debts beyond their holding in the company.
Limited Liability of Directors
In a private limited company, the personal assets of the director’s remain untouched if there are any outstanding debts on the company. Only the money invested for incorporation or the assets of the company are to be sold off for paying off the dues.
Easy Transferability
The ownership of the business can be transferred to an individual or to a company by transferring the shares with the consent of shareholders. This transfer is much easier whereas in proprietorship such transfer is not allowed.
Uninterrupted existence
A private limited company is a separate legal entity and hence it has a perpetual succession. Unlike a sole proprietorship, it is unaffected by the death or other departure of any member. It continues to be in existence irrespective of the changes in membership.
Documents Required for Proprietorship to Private Limited Co. Conversion India
PAN Card & Aadhar Card of Directors – Mandatory
2 directors mandatory
Passport Size Photo (In Jpeg Format) of directors
Proof of Residence of Directors. (Telephone Bill, Electricity Bill, Mobile Bill, Bank Statement, etc.)
NOC from the owner of the registered office address. (If place on Rent)
Proof of registered office address in India (Electricity Bill, Telephone Bill, Maintenance Receipt (Rent Agreement if place taken on rent)
How to Convert Proprietorship to Pvt. Ltd. Co. Online with CCA?
1. Fill the form given on the right 2. Select your package 3. Fill the company details 4. Pay the amount & done Once you done, our expert will contact you.
Frequently Asked Questions
1What are the key requirements/factors for registering a private limited company?
A Private Limited Company would need two or more members who shall act for as directors of the said company. It is a general practice that the shareholders of the company play the role of directors. It does not require any minimum amount to be infused as capital. However, a certain fee must be paid to the Government for issuing a minimum of shares worth ₹ 1 lakh [Authorized Share Capital] during company registration. Also, there is no requirement to show proof of capital invested during the registration process.
2 Is a Private Limited Company structure suitable for my business?
Starting a business under the Pvt. Ltd structure is advantageous as it creates trust and credibility. Its easier to get loans, and it helps in attracting more financial institutions, suppliers and potential clients. financial institutions and individuals prefer investing in companies that are reliable and private limited companies offer such a reliability factor, as compared to a structure like a sole proprietorship or general partnership. Therefore if you are looking for expanding or trustworthiness is an important part of business its a very good option
3 For how long is the Company registration valid?
Once a Company is incorporated, it will be active and in existence as long as the annual compliances are met regularly. In case, annual compliances are not complied with, the Company will become a Dormant Company and maybe struck off from the register after a period of time. A struck-off Company can be revived for a period of up to 20 years.
4What is the statutory compliance requirement for registering a Private Limited company in India?
The company must hold a Board Meeting at least once in every 3 months. In addition to the Board Meetings, an Annual General Meeting (AGM) must be conducted at least once every year. Fulfillment of Annual Compliance Requirements is a must to maintain the active status of the company.
5How we can reserve the name for a Company?
Ministry has introduced a new form “RUN” (Reserve Unique Name) for company name registration on its portal. Under “RUN”, the applicant can make application by providing 2 different names with its significance. The names should be unique and in accordance with the provisions.
6What happens to the assets and liabilities of the sole proprietorship?
All the assets and liabilities of the sole proprietary concern relating to the business are considered to be purchased by the newly formed company. This makes the sole proprietor liable to pay taxes for any capital gains calculated on such transfer. However, there is a provision under section 47(xiv) of the Income Tax Act, which lays down certain conditions for exemption from any capital gains i.e.; if they are transferred immediately before the succession, it becomes the assets and liabilities of the company.
7 Whether the Body Corporate can be a Shareholder in Private Company?
Any person is eligible to be a shareholder while registration or afterwards. A Body Corporate such as company or LLP; and Association of Persons (AOP) such as Society or Trust can also hold shares in a company. Further, a group of persons can jointly hold the share in the company.