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Brief of Sole Proprietorship to Private Limited Company

The sole proprietorship cannot receive all the benefits of the operation as it grows. There will therefore be a need to convert the company into a private limited company. The conversion can lead to all the benefits of a company, such as higher capital, limited liability, and so on.

As the business grows, the demands of the business and the drawbacks of the firm could force the entrepreneur to start the process of converting the business into a private limited company. A private limited company offers significant advantages over the form of ownership of a business, including limited liability, the ability to attract capital, continued existence and more. In this article, we look at the requirement and procedure for converting a company into a private limited company.

The conversion of a company into a private limited company has many advantages, but it also brings with it the spread of power and the loss of independence. It is therefore necessary to take a decision after careful consideration of all the factors involved and to see whether it really gives rise to the intended privileges.

Grounds of Conversion

  • A acquisition deal or a results that were obtained must be concluded between the sole owner and the company.
  • The Memorandum of Association (MOA) must contain the subject-matter "Acquisition of a sole proprietorship."
  • All the financial assets of the sole proprietorship shall be transferred to the company.
  • The shareholding of the owner shall not be less than 50% of the voting power and shall continue to be held for a period of five years.
  • The holder shall not receive any additional benefits, either directly or indirectly, except to the extent of the shares held.

Step Included for Conversion of Proprietorship to Company

The following are the steps involved in converting the owner into a company when the requirements are met:

  1. The owner must complete the formalities of the slump sale.
  2. For all directors, the Director Identification Number (DIN) and the Digital Signature Certificate (DSC) must be obtained.
  3. The owner must apply for the availability of the name in the form – 1.
  4. Prepare the company's MOA and AOA specifying the objects and the company's rules.
  5. Application for incorporation of the company into the Ministry of Corporate Affairs (MCA).
  6. Submit all of the relevant documents.
  7. Receive an Incorporation Certificate.
  8. Apply to the new PAN and TAN.
  9. Change the bank details as per the conversion.

Documents required for conversion

For conversion, the following documents are required:

  1. Copy of the PAN card of all directors (Identity Proof).
  2. Copy of Aadhar ID card/voters (Address Proof).
  3. Passport size photographs by the directors.
  4. Proof of ownership of the place of work (if owned).
  5. If rented, rental agreement.
  6. No Landlord Objection Certificate (NOC).
  7. Electricity or water bills.
Sole-Proprietorship Pvt. Ltd. Company

The forms to be submitted to the MCA are as follows:

– Form 1 must be submitted to the MOA, AOA and other documents.

– Form 18 sets out the details of the registered office.

– Form 32 details the directors' information.

Prerequisites for the formation of a private limited company

In order to form a private limited company from a sole proprietorship, the procedure is first to form a private limited company and then to take over the sole owner by means of a Memorandum of Association (MoA) and to transfer all benefits and liabilities to a limited company. The following requirements must therefore be taken into account before applying for a certificate of incorporation.

Directors: a minimum of two directors are required for the formation of a private limited company. One may be the owner himself, and the other may be a relative or a friend.

Director Identification Number: Directors need to have an Identification Number as a prerequisite for incorporation.

Shareholders: The company must have at least two shareholders, and they may be the same as the directors. The owner of the sole proprietorship must be one of the directors of the limited company.

Capital: The company must have a minimum capital of 1 Lakh Rupees.

Benefits of Converting Sole Proprietorship into Private Company

  • A certified company makes this accurate and enhances the authenticity of your company.
  • Protects from personal responsibility and protects against other risks and disadvantages
  • Drags up more clients
  • Provides bank loans and excellent investment by adequate investors
  • Protect the property of your company
  • More exceptional contribution to capital
  • Increases the ability to grow big and evolve.
  • Stockholders have the right to appoint directors to act on their behalf.
  • Even after the death of directors/shareholders, there will be no discrepancy.
  • Shareholders and directors shall have complete immunity from third party prosecution, with the exception of personal issues.

Basic requirements of Converting Sole Proprietorship into Private Company

Pursuant to the orders and regulations of the Company Act, 2013, in order to incorporate any company to be certified in India, the following options must be met.

Number of directors;

There should be at least two directors in a private limited business, and at most there may be 15.

Other Name

The title of your business has to be unique. The proposed name should not be similar to any existing Indian companies or trademarks.

Minimum share capital

There is no minimum amount of capital for a company.

Office designated

The registered office of a company does not have to be a commercial premises. Even a rented home may be a registered office if NoC is obtained from the landlord.

Memorandums of Association

In the material clause of the Memorandum of Association (MOA), there should be a present expression 'the acquisition or acquisition of a sole proprietorship interest.'

Annual Returns

The private limited company should submit an annual statement of economic accounts and annual returns to the company's registrar on an annual basis.

Manual to web-based SPICe + MCA Filing Form

SPICe Plus meets a number of requirements, such as name reservation, incorporation, DIN allocation, mandatory issue of PAN, TAN, EPFO, ESIC, Professional Tax (Maharashtra) and Opening of Bank Account, and purchases GSTIN via SPICe+ form.

Partie A:

  • Name Booking (New Companies only)

Partie B:

  • Incorporation of Company
  • DIN Application
  • Application for PAN
  • Application for TAN
  • Application for GSTIN
  • Registration of EPFO
  • Registration of the ESIC
  • Opening of the Company's Bank Account
  • Tax Profession Registration (only for Maharashtra)

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Frequently Asked Questions

It's a Pvt. Ltd. company would need two or more members to act as directors of that company. It is common practice for the shareholders of the company to play the role of directors. It does not require a minimum amount to be infused as capital. However, a certain fee must be paid to the Government for issuing a minimum share value of 1 lakh [Authorized Share Capital] during the registration of the company. There is also no requirement to show proof of the capital invested during the registration process.

Starting a business with the Pvt. The structure of Ltd is advantageous as it creates trust and credibility. It is easier to obtain loans and helps attract more financial institutions, suppliers and potential clients. Financial institutions and individuals prefer to invest in companies that are reliable and private limited companies offer such a reliability factor compared to a structure such as a sole proprietorship or a general partnership. Therefore, if you are looking for an expansion or trustworthiness that is an important part of your business, it is a very good option.

Ministry has introduced a new form "RUN" (Reserve Unique Name) for the registration of the company name on its portal. Under 'RUN,' the applicant may make an application by providing two different names with their meaning. Names should be unique in nature and in accordance with the provisions.
All assets and liabilities of the sole proprietary interest relating to the business are considered to have been acquired by the newly formed company. This means that the sole owner is liable to pay taxes on any capital gains calculated on the transfer.

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