Overview

Due to lack of compliance, sole proprietor is the category chosen by most of the people to star their business, as the company business grows, it does not fit the limitations of the sole proprietorship. With growth, to meet with the business world it is the aim, and the drawbacks of a sole proprietorship do not meet its growth; thus, it leads to conversion into private limited company. A private Limited company has so many advantages over proprietorship.

For conversion of sole proprietor into a private company, there is an agreement that has to be signed between the sole proprietorship and the newly incorporated private limited company for the sale of business. This kind of incorporated Private Company should mention in its Memorandum of Association that it has taken over a sole proprietorship. The sole owner of the proprietorship must be made a part of board of directors with the right to vote.

What Are The Conditions Required for Conversion Into Private Limited Company?

• Sale agreement or agreement to takeover between the sole proprietor and new private limited company.

• As one of the objectives the takeover should be mentioned in the MOA of the new Private Company.

• Transfer of all the assets as well as liabilities of the sole proprietorship to the newly incorporated Private Company.

• There must be at least 50% shareholding of the sole proprietor, and the same should continue for the next five years.

• There is no additional benefits that has been received by the proprietor.

What are the Basic Requirements of Conversion of Sole Proprietorship Into A Private Company?

According to the rules and regulations of the Company Act, 2013, in order to incorporate any certified company in India, the following should be required:According to the rules and regulations of the Company Act, 2013, in order to incorporate any certified company in India, the following should be required:

• Number of Directors:There must be a minimum of two directors and maximum of 15 in a Private Limited Company.

• Unique Name: Private Limited company must have a unique name, and it there must be no resemblance to any existing companies or trademarks in India.

• Designated Office: The Company registered office does not have to be a commercial space. A rented home can also be a registered office.

• Annual Returns: The private limited company should file an annual financial account statement and annual returns with the registrar of the company every year.

• DIN & DSC: It is mandatory to have DSC and DIN of all the directors of a newly incorporated private company.

• Minimum Share Capital: For the incorporation of a company no minimum share capital is required.

What are the Documents Required for Conversion to a Private Limited Company?

The documents that are required for the conversion of a sole proprietorship into a Private Limited Company are:

• No Objection Certificate is required from the owner of the land.
• Ownership proof of the place of business is required.
• Address Proof of all the directors is required.
• Identification Proof of all the directors are required.
• Passport size photographs of all the directors are required.
• Lease/rent agreement, if the property is rented is required.
• Utility bills are required

Others documents that are required for the owner of the land with the appropriate forms:

• Requirement of details of registered office.
• Requirement of Memorandum of Association.
• Requirement of Particulars and information of directors
• Requirement of Articles of Association.

What are the Benefits of Conversion of Sole Proprietorship Into Private Company?

There are a lot of benefits related to A Private Limited Company, such as:

• For the sole proprietorship there is no formal registration, Under the Companies Act 2013, the Private limited companies are registered.
• There is no separate legal entity that hold the sole proprietorship, and the private limited company is a separate legal entity.
• In case of sole proprietorship, there is no transfer of shares, whereas, in case of private limited company, the shares are transferred easily.
• The way sole proprietor raise the fund or capital for expansion just the same way a Private Limited Company can raise the fund or capital for expansion.
• In a Private Limited Company, in case of losses, liabilities are limited by shares or warranty, whereas the sole proprietor is not a corporate entity, are not able to enjoy such benefits.
• A sole proprietor is not been able to afford capable and highly qualified employees, whereas for Private Limited Company it is much easier.
• There is unlimited liability in case of sole proprietorship, but it is limited to the shares of private limited company.
• Unlike sole proprietorship, A Private Limited Company is more genuine because, it is registered and authenticity of the business.

What is the Procedure for Conversion of Sole Proprietorship to Private Limited Company?

The conditions that must be followed before converting a sole proprietorship to a private limited company:

• After incorporation of a new private limited company, there is transfer of all the assets and liabilities of the old sole proprietorship completely to the incorporating company.
• The old sole proprietorship will hold 50% share in a new private limited company i.e., 50% of the voting rights will be held by a sole proprietor, even after the conversion takes place.
• From the date of Incorporation of a new private limited company the old sole proprietor will hold shares for a minimum period of 5 years.
• There will be not any monetary consideration between a private limited company and a sole proprietor as it is a mere conversion, not a sale.

What are the Steps to be Followed for Converting a Sole Proprietorship Into a Private Limited Company?

• The sole proprietor must complete all the steps related to the slump sale formalities.
• It is mandatory for the sole proprietor to obtain DIN and DSC for all the persons who are going to be the directors of the company to be incorporated.
• For checking the availability of name for the new private company application has to be made.
• Drafting of the MOA and AOA of the new Private Limited Company must be done by the sole proprietor. In MOA, there must be an addition of objective stating that the sole proprietorship has been taken over by the company.
• Online application must be filed by the sole proprietor for Company Registration from the Ministry of Corporate Affairs online portal.
• Along with the application form all the documents should be submitted.
• The Certificate of Incorporation from the Registrar of Companies must be secure by the applicant.
• The applicant should then apply for TAN and PAN numbers from the authorized signatory.
• At last, updating the bank accounts of the private limited company for carrying out transactions.

After all the above mentioned steps get completed, the application and the documents filed with it must be verified by MCA, and also after satisfaction, there will be an issuance of a Certificate of Incorporation. The Certificate of Incorporation will help in giving new birth to the private limited company.

Why to Choose Legaltax for Conversion of Sole Proprietorship to a Private Limited Company?

• Regarding the conversion add queries.

• Provide the documents to Legal tax expert.

• Proper advisory and assistance for the conversion of the sole proprietorship.

• Get your work completely done with easy process.