Convert a Sole Proprietorship to Private Limited Company Online Easily!
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Convert Proprietorship To Private Limited Company With Advisource
As a business and its revenues grow, it becomes important to separate the tax filings and bank accounts of a sole proprietor from those of the business. That’s where we come in to assist you in converting a Sole Proprietorship to a Private Limited Company. Our team provides guidance on the process and helps ensure a smooth transition.
Proprietorship to Private Limited Company conversion
Conversion of Proprietorship into Private Limited
As a business expands, the limitations of a proprietorship firm may prompt an entrepreneur to consider converting it into a private limited company. This type of business structure offers many benefits compared to a proprietorship, such as limited liability, the ability to raise equity capital, and the ability to continue existing even after the departure of the owner.
Converting a proprietorship into a private limited company involves changing the legal structure of the business. The process includes obtaining a new PAN and TAN, registering with the Registrar of Companies (ROC), and obtaining necessary licenses and permits. It also includes drafting and filing of the necessary documents, such as the Memorandum of Association (MOA) and Articles of Association (AOA). The process can be complex and time-consuming, but it offers many benefits such as limited liability protection, increased credibility, and access to funding. Additionally, it can also help in saving on taxes and make it easier to expand the business. It’s important to seek professional guidance to ensure the process is done correctly and in a timely manner.
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Proprietorship vs Private Limited Company
Proprietorship and Private Limited Company are two different forms of business structures in India.
Proprietorship: A proprietorship is a type of business that is owned and run by one person, known as the proprietor. It is the simplest and most common form of business in India. It is easy to set up and requires minimal compliance. The proprietor is personally liable for the debts and liabilities of the business.
Private Limited Company: A private limited company is a type of business where the liability of the members or shareholders is limited to the capital they have invested. It is a more complex structure compared to a proprietorship and requires more compliance. It is a separate legal entity and can continue to exist even after the departure of the owners. It can also raise equity capital by issuing shares to investors.
Requirements for Conversion
Before proceeding with the conversion of a proprietorship into a private limited company, the proprietor must ensure compliance with certain requirements. These include:
1. Entering into an agreement between the proprietor and the private limited company for the conversion, known as a slump sale agreement.
2. The Private Limited Company’s Memorandum of Association (MOA) should mention the takeover of a sole proprietorship concern.
3. All assets and liabilities of the proprietorship should be transferred to the private limited company.
4. The proprietor should be on the company’s board of directors with voting power that represents at least 50% of the company. A private limited company must have a minimum of two directors.
5. The minimum share capital requirement for a private limited company is Rs 1,00,000 as per incorporation rules.
Procedure for Conversion
The process of converting a proprietorship into a private limited company involves several steps, including:
1. Obtaining a Digital Signature Certificate (DSC)
2. Applying for a Director Identification Number (DIN)
3. Checking for the availability of the desired company name
4. Filing the Memorandum of Association and Articles of Association to register the private limited company
5. Applying for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) for the company
6. Obtaining a certificate of incorporation from the Registrar of Companies (RoC) that includes the PAN and TAN
7. Opening a bank account for the company
Documents Required for Conversion
The following documents are required for conversion:
1. PAN Card copy of all directors (Identity Proof).
2. Copy of Aadhar card/ Voters ID (Address Proof).
3. Passport size photographs of Directors.
4. Proof of ownership of business place (if owned).
5. Rent agreement if rented.
6. No Objection Certificate (NOC) of Landlord.
7. Electricity or water bill.
The forms to be submitted to the MCA are:
1. Form 1 must be filed with the MOA, AOA and other documents.
2. Form 18 specifies the details of the registered office.
3. Form 32 contains particulars of the information of the directors.
Benefits of Private Limited Company
There are several benefits to registering a private limited company in India, including:
1. Limited liability: The liability of shareholders is limited to their share capital. This means that shareholders are not personally responsible for the debts and obligations of the company.
2. Separate legal entity: A private limited company is a separate legal entity from its shareholders and directors. This means that the company can enter into contracts, own assets, and incur debts in its own name.
3. Improved credibility: Registering a private limited company can improve the credibility of a business and make it more attractive to potential customers, suppliers, and investors.
4. Easier to raise capital: Private limited companies can raise capital through the sale of shares to investors. This can be a more attractive option than borrowing money from banks or other financial institutions.
5. Perpetual succession: A private limited company has perpetual succession, which means it continues to exist even if the shareholders or directors change. This can provide stability and continuity for the business.
6. Ease of transfer of ownership: The ownership of a private limited company can be easily transferred by transferring shares. This can be a more straightforward process than transferring ownership of a sole proprietorship or partnership.