Proprietorship to Pvt Ltd Company

Overview of Conversion of Proprietorship to Private Limited Company

Due to its low compliance requirements, many Indian entrepreneurs start their businesses as sole proprietorships. There is a possibility that the business will grow and become more profitable after a certain period.

Sole proprietorship firms will now be converted to private limited companies to limit liability and to separate bank accounts and tax filings from individuals.

Under the Companies Act 2013, converting a proprietorship into a limited company reduces liability risks, and personal assets remain intact except in the event of fraud.

In a private limited company, the shares are held privately and not offered to the public. Under the income tax act 1961, the tax structure also differs from that of a sole proprietorship, which considers the income as an individual’s.

Benefits of converting Sole Proprietorship to a Private Limited Company 

 Registering a company increases authenticity and makes it look genuine. Let’s see the benefits of converting:

• It helps you avoid massive losses and protects you from personal liability. 
• Customers get attracted to your business.
• It eases the process of procuring loans from banks and funds from investors.
• Protects your company assets with liability protection
• Makes the business more stable and increases capital contribution
• Increases the potential for expansion
• The shareholders can appoint directors to handle the business operations on their behalf.
• Shareholders’ company will continue existing without any discrepancies even after the death of directors, unlike Sole Proprietorship.
• The shareholders and the directors receive complete immunity from being sued by the third party except in cases of personal problems.
• Under the Income Tax Act 1961, there are comparatively lower tax rates.

Checklist for Registering a Company in India

As per the rules and regulations of the Company Act 2013, in order to incorporate any company to be registered in India, the below conditions have to be met.

Two Directors

• A private limited company is required to have a minimum of two directors, and the maximum count should not exceed 15, among which one must be an Indian Resident.

Unique Name

• The name must not match with any other company or trademark in India and must be unique.

Minimum Capital Contribution

•  Except for an authorized capital of a minimum of Rs. 1 lakh, there is no minimum capital amount.

Registered Office

• It is not mandatory for the Registered Office to be a commercial place; a rented place can be utilized as an office with a NOC from the landlord of the home property.

Memorandum Of Association( MOA)

• It is mandatory to have the phrase “the takeover or acquisition of a sole proprietorship concern” in the objects clause of the Memorandum Of Association.

Annual returns

• The private limited company has to file annual returns and an annual financial accounts statement with the registrar of the company annually.

The process to Register a Company Online:

In India, company registration will boost startup progress and provide an advantage over those without registration. Regulations and rules framed by the Ministry of Corporate Affairs govern the company registration process.

List the conditions to be followed prior to converting a sole proprietorship to a private limited company.

• The old sole proprietorship’s assets and liabilities will be transferred to the new company after incorporation.
• It is likely that the old sole proprietorship will retain 50% of shares in the new private limited company even after the conversion takes place. In other words, 50% of the voting rights will be held by a sole proprietorship.
• Once the new private limited company has been incorporated, then the old sole proprietor can hold shares for at least five years from that date. 
• It should be clear that this is a conversion from a Sole Proprietorship to a Private Limited Company and not a sale transaction. Therefore there will not be any monetary transaction involved.

Steps to Convert Proprietorship to a Private Limited Company

• Step 1: Apply for Digital Signature Certificate
• Step 2: Apply for the Director Identification Number
• Step 3: Check if the Name is available.
• Step 4: In order to register the Private Limited Company file the EMOA and EAOA 
• Step 5: Obtain the company’s PAN and TAN. 
• Step 6: Submit the issued certificate of incorporation by RoC along with PAN and TAN
• Step 7: Open a current bank account in the name of the company

What are the Documents Required for the Conversion of a Sole Proprietorship into a Private Limited Company?

It is not possible to register a Private Limited company in India without proper identification proof and proof of address. To incorporate a company, all the directors and shareholders will need to provide proof of identity and address. The list of documents that are accepted by MCA for the online company registration process is as follows:

Identity And Address Proof

• PAN Card or Passport Copy if Foreign Nationals & NRIs
• Voter’s ID/Passport/Driver’s License copy as Identity Proof
• Copy of the latest bank statement or any utility bill.
• Passport-sized photograph and specimen signature on blank paper if a director

A notarized or apostilled copy of the passport is mandatory for foreign nationals. It is important that all documents submitted are valid. The bank statement or the electricity bill that is submitted as residence proof must not be older than two months.

Registered Office Proof

A registered office is required for the Online Company Registration Process in India. To prove admittance to the registered office, any form of recent utility bill copy or the property tax receipt must be submitted. In addition to the rental agreement, utility bills or the sale deed and a letter from the landlord with consent to use the office as the registered office of the company should also be submitted.

• A copy of the latest bank statement and any utility bill
• Copy of Notarized rental agreement in English
• Copy of NOC from the landlord
• A copy of the property deed in English if own property

E-Form spice 32

This is an incorporation e-form provided at the end of the incorporation of a company. The required details must be filled in this form and submitted along with the necessary documents.

Frequently Asked Questions