Proprietorship To Private Limited
To increase the amount of business, an individual can go for the process of conversion of proprietorship into a company. For such process, an individual requires to have or enter into a formal agreement for the process of conversion. Such compliances have to be maintained by the entity before going for the process of conversion.
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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.
Documents Required for Company Registration
Latest Passport size Color photograph of all the promoters (Shareholders and Directors)
Income Tax Returns Acknowledgement
Registered office Proof
Latest & Clear Telephone Bill/Electricity Bill/ /Water/Gas Bill of the registered office address
PAN Card of all shareholders and Directors. Foreign nationals must provide a valid passport.
Latest Bank Statement/Telephone Bill/Electricity or Gas Bill/Water Bill of Shareholders and Directors
NOC from owner
No Objection Certificate from owner(s) of the premises of registered office.
Benefits of conversion from Sole Proprietorship to Private Limited Company
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.
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.
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.
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.
Convert Proprietorship Firm into private ltd. company in 3 Easy Steps
Process of conversion of proprietorship to Pvt. Ltd.
Frequently Asked Questions
A Pvt. Ltd. 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.
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
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.
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.
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.
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.
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.
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