Sole Proprietorship to a Private Limited Company Conversion
Convert a Sole Proprietorship to a Private Limited Company
Sole Proprietorship is a business entity that is wholly owned and controlled by an individual, individuals who want to start a business can register Sole proprietorship. As the business grows it is necessary to convert it into a Private Limited company for better advantages. It is better to opt for a Company as it gives the entity status of the separate legal entity but also a Private limited company has more advantages than a sole proprietorship.
A private limited company has significant advantages over other types of business ownership. Here we will look at the requirements and the procedure for converting a sole proprietorship into a company.
Before we talk about the conversion we will talk about the difference between the sole proprietor and the Private Limited Company.
|Sr. No||Difference||Sole Proprietorship||Private Limited Company|
|1||Registration||Informal Registration||Is registered under the Companies Act, 2013|
|2||Legal status||Is not a separate legal entity||Is a separate legal entity under the Companies Act,2013|
|3||Transferability of shares||Not transferable||Shares are transferrable|
|4||Liability||Unlimited||Limited by the extend of shares|
|5||Members||1 member only||
Minimum 2 member
|6||Taxation||Income tax is the same for the proprietor and the proprietorship||The profits are taxed at 30% surcharges and cess as applicable|
|7||Compliance||–||Annual return, Annual accounts are required to be filed with the ROC every year.|
Conditions for converting of a Sole Proprietorship
- For converting an agreement has to be made between the sole owner and the Private Limited Company.
- The MOA has to include a line that says – “Take over of sole ownership concern”
- Additionally, all the benefits and the liabilities of the sole proprietorships are to be transferred to the Private Limited Company
- The sole owner needs to be the voting member of the organizational director board. If the directorial board is half the size of the organization.
- Also the Companies Act, 2013 makes it mandatory for those who have the minimum share capital of a private limited be Rs.1,00,000.
Documents required for the conversion of a Sole Proprietorship
- PAN Card of the Directors
- Aadhar card copy
- Passport size photographs
- Ownership proof of the business place
- Rental agreement
- NOC from the landlord
- Electricity or the water bill.
- Form 1 must be filed with the MOA, AOA
- Form 18 specifies the details of the registered office
- Form 32 contains the information of the Director.
Step by Step procedure for registering as a Private Limited Company
- The Companies Act of 2013 and the Income Tax Act of 1961 govern the conversion of a sole proprietorship to a Private Limited Company.
- At first, we help in obtaining the DIN and the Digital Signature Certificate has to be obtained for all the Directors
- The name of the corporation is to be approved in Form 1
- We also prepare the Memorandum of Association and the Articles of Association that outline the objectives and the policies.
- An application is made to the MCA for establishing the Company
- You will be issued the incorporation certification roughly in 7 to 10 days.
But this is subject to the submission of documents and Government processing.
Benefits of registering a Company
There are various reasons for registering as a Private Limited company here we have listed a few of them:
Capital expansion: A sole proprietor is limited to the capital of the owner, a Private Limited company has fundraising options and can raise capital.
Limited Liability: A sole proprietor is responsible for the losses and the personal assets of the sole proprietor are attached to repay creditors in case of losses. In the case of a company, these liabilities are limited by the shares or warranty.
Perpetual succession: The sole proprietorship is dependent on a single person the existence is limited till the proprietors. Whereas the private limited company is considered to be a single entity and is not bound by the existence of a single owner.