Conversion Of Proprietorship To Private Limited Company

Sole Proprietorship is a business that is wholly owned and controlled by an individual, it is a good form of business for individuals who want to start up a small business, but when you get success in the business, it is necessary to convert it into something massive for more significant advantages. For this many people, the first choice is a Private Limited Company as it gives it the status of a separate Legal entity. Also, a private limited company offers significant advantages over sole Proprietorship.

A sole proprietorship doesn't get all benefits of operation as it grows. To increase the business, an individual can go through conversion of Proprietorship into a private limited company. An individual is required to enter into a formal agreement for conversion. The team should maintain such agreements before going for the process of conversion.

Why is Conversion of Proprietorship into Company suitable ?

  • Limited Liability
  • Less Responsibility

Conditions For Conversion

  • The Memorandum of Association (MOA) has to be carried out "The takeover of a sole proprietorship".
  • All the assets and liabilities of the Sole Proprietorship are mandatory to be transferred to the company.
  • The shareholding of the sole proprietor should not be less than 50% of the voting power, and it must continue to be held for five years.
  • The proprietor will not receive any additional benefits directly or indirectly, except to the extent of shares held.

Advantages Of Conversion

Advantages Of Conversion Of Proprietorship To Private Limited Company

  • Separate Legal Entity

    A private limited has its existence break free as its administrators and members being a legal entity.

  • Borrowing capacity

    There are higher avenues for borrowing funds for an organization. It will issue debentures, secured likewise as unsecured and banking and money establishments like better to render big-money help to the corporate and company enjoy avenues for borrowings of funds instead of sole proprietary.

  • Limited Liability

    Insole proprietary owner own assets are in danger in even of any loss or failures, however just in case of an organization, if the company, in any event, become insolvent or is tense, solely the assets of the corporate are wont to clear the debts, the administrators or shareholders of the corporate haven't any personal liabilities company being a separate legal entity.

  • Continuity

    A sole proprietorship depends on an individual, so it is limited to the proprietor's ability to operate. But, the private limited company is an individual legal entity and not bound by the existence of a single owner.

  • A sole proprietorship is a business that is wholly owned and controlled by an individual. It is a good form of business for individuals who want to start up a small business. Still, it is necessary to convert it into something massive for more significant advantages when you succeed. For this many people, the first choice is a Private Limited Company as it gives it the status of a separate Legal entity. Also, a private limited company offers significant advantages over sole Proprietorship.

Documents Required

The following documents are required for conversion:

  • PAN Card for Identity Proof
  • Copy of Aadhar card (Address Proof).
  • Passport size photographs of Directors.
  • Proof of ownership of the business place.
  • Rental agreement if rented.
  • No Objection Certificate (NOC) of Landlord.
  • electricity or water bill.

The forms that should be submitted to the MCA are:

  • Form 1 mandatory filed with the MOA, AOA.
  • Form 18 gives the details of the registered office.
  • Form 32 has particulars of the information of the directors.

Procedure For Conversion Of Proprietorship To Company

  • The following are the steps for the conversion of Proprietorship to a private limited company.
  • The proprietor mandatorily should complete the slump sale formalities.
  • The Director Identification Number (DIN) and the Digital signature certificate (DSC) should be there with all the directors.
  • The proprietor should apply for the name in Form – 1.
  • Prepare the company's MOA and Articles of Association (AOA) specifying the terms and conditions.
  • Apply for the incorporation to the Ministry of Corporate Affairs (MCA).
  • Submit all the documents.
  • Receive the Certificate of Incorporation.
  • Apply for a new PAN and TAN.
  • One should go to the bank to modify the details after conversion.
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