Conversion of Sole Proprietorship to Private Company
As a company expands, the needs of the business and the difficulties with a sole proprietorship might force a business owner to start the process of converting a sole proprietorship into a private limited company. A private limited company has many advantages over a sole proprietorship, such as ability to attract equity capital, limited liability, the ability to stay in business, and more. Throughout this article, we look at what you must do to convert a proprietorship to a pvt ltd company and how to do it.
Conversion Requirements
- It is necessary for the sole proprietor and the business to sign a takeover or sale agreement.
- The phrase “The takeover of a sole proprietorship” must be in the Memorandum of Association (MOA).
- The business must receive ownership of all of the sole proprietorship’s assets and liabilities.
- The proprietor must hold a minimum of 50% of the voting power and must maintain that ownership for a minimum of 5 years.
- Except for the amount of shares held, the proprietor does not receive any additional benefits, either directly or indirectly.
Procedure for Conversion of Proprietorship to a Private Limited Company
When the aforementioned conditions are satisfied, the following processes are necessary to convert a proprietorship to a company:
- The owner is required to complete the procedures for finishing the slump sale.
- All directors must get a Director Identification Number (DIN) and a Digital Signature Certificate (DSC).
- The owner is required to apply using Form 1 such that they can request the availability of the name that was planned by them.
- Designing and preparing the company’s Memorandum of Association (MOA) and Articles of Association (AOA. This should majorly include the company’s goals, rules and regulations for running the entity.
- Contact the Ministry of Corporate Affairs or MCA to request the incorporation of your business.
- Send in all the necessary paperwork.
- The Certificate of Incorporation shall be taken from the ROC i.e., Registrar of Companies or Ministry of Corporate Affairs.
- Get by applying for a new Permanent Account Number or PAN and TAN by making due application.
- Change the bank information to reflect the conversion.
What are the Documents Required for Converting Proprietorship to Company
The following paperwork is necessary for conversion:
- a copy of each director’s PAN or Permanent Account Number card as an Identity Proof
- Aadhar card or voter ID copy as an Address Proof
- passport-sized images or photographs of the directors
- Proof of business location and the ownership details of such places if owned
- If rented, a rental agreement.
- Landlord’s No Objection Certificate (NOC).
- water or electricity bill.
Forms Required for the Conversion
- Along with the AOA, MOA, and other papers, Form 1 must be filed.
- The specifics of the registered office shall also be detailed in Form 18.
- Details of the directors’ information should be contained in Form 32.
Conditions for Establishing a Pvt Ltd Company
For convert a sole proprietorship into a PLC (Pvt Ltd Company), there are certain procedures phases which are to be adhered to by the entity. These phases or steps involved has been discussed herewith:
Firstly, create the private limited company; and
Second, use a Memorandum of Association (MOA) to take over the sole proprietorship and transfer all rights and obligations of the company to the limited company.
Thus, prior to requesting a certificate of incorporation, the following conditions must also be met with.
- Directors: A private limited company must have a minimum of two directors in order to be incorporated. The owner himself is one of them, and any other family member or acquaintance is the other.
- Director Identification Number: In order to incorporate, the directors must have an Identification Number which is simply referred to as DIN under the Companies Act, 2013.
- Shareholders: The minimum number of shareholders for the business is two, and they might be the same people who serve as the directors. One of the directors of the private limited company which was registered by converting a sole proprietorship entity must be the proprietor of the single proprietorship prior to its conversion.
- Capital: The minimum authorized capital for the company is one lakh rupees.
Benefits of Registering Private Limited Company
Some of the advantages of Registering Private Limited Company when compared to a sole proprietorship entity would be as follows:
- Capital expansion: When we take a private limited company, we can say that it has fundraising possibilities. Which can be used for as extra fund for expansion of the business. And a sole proprietorship is only as wealthy as its owner which would intact affect its business earning capacity.
- Limited liability: A sole proprietor is entirely liable for losses, and in the event of losses, creditors may also attach the sole proprietor’s personal assets to satisfy debts. Such responsibilities and errands are, but, limited in the case of a private limited company by shares or a warranty.
Now let’s, conclude by saying that, because a sole proprietorship depends on only one person, it can only last as long as the owner is able to run it. The private limited company, on the other hand, is a distinct legal entity that is not constrained by the existence of a single owner which increases the reliability and growth of the business as a brand.
Conclusion
End-to-end solutions for transforming from a sole proprietorship to a private limited company are offered by Kanakkupillai. Leading legal accounting company Kanakkupillai.com offers thorough services for converting a proprietorship into a private company. Take the first step towards this conversion by getting in touch with us @ +91 7305345345.
