Conversion of Sole Proprietorship to Pvt Ltd Company

A sole proprietorship firm cannot get all the advantages of operation as it grows. So, there will be a requirement to Convert Sole Proprietorship to Private Limited Company. The conversion can bring in its wake all the advantages of a company like limited liability, higher capital, and so on. Conversion of a Proprietorship to Pvt Ltd Company provides many benefits, but it brings along the diffusion of power and loss of independence. So, the decision should be taken after careful consideration of all the facts involved and to see if it genuinely brings about the privileges intended.

In the Procedure For Conversion of Sole Proprietorship into Private Limited Company, an agreement has to be executed between the sole proprietor and the company for the sale of the business.

Documents Required for Conversion of Proprietorship into Private Company

The following documents are required:

• PAN Card copy of all directors.
• Copy of Voters ID/Aadhar card.
• Passport size photo of Directors.
• Proof of ownership of a business place.
• Rental agreement (if rented).
• No Objection Certificate of Landlord.
• Water or electricity bill.

Conditions for Conversion of Proprietorship to Pvt Ltd Company

• A takeover or sale agreement requires for the Conversion of Proprietorship into Private Company.
• The Memorandum of Association requires carrying the object that is the take over of a sole proprietorship.
• All the liabilities and assets of the sole proprietorship should be transferred to the company.
• The proprietor’s shareholding should not be less than 50% of the voting power.
• The sole proprietor does not receive any additional benefits directly or indirectly, except to the extent of shares held.

Procedure For Conversion of Sole Proprietorship into Private Limited Company

The following steps are involved to Convert Sole Proprietorship to Private Limited Company when the above-mentioned requirements are met.

• The Sole proprietor must complete the formalities of slump sale.
• The Director Identification Number and the Digital signature certificate must be obtained for all the directors.
• The proprietor must apply for the availability of the Company name in Form 1.
• Prepare the MOA and AOA of the company specifying the rules and objects of the company.
• Apply for the incorporation to the MCA.
• Submit all the relevant documents.
• Get the Certificate of Incorporation.

Prerequisites: Forming a Private Limited Company

To form a sole Proprietorship to Pvt Ltd Company, the procedure is to form the private limited company and then take over the sole proprietorship through a Memorandum Of Association and transfer all the liabilities and benefits to the Private limited company. So, the following requirements must be taken care of before applying for an incorporation certificate.

Directors – A minimum of two directors are required for the Conversion of Proprietorship into Private Company. One of them can be the proprietor, and the other can be any relative or friend.

Director Identification Number – The directors must have an Identification Number as a prerequisite to incorporation.

Shareholders – Minimum of two shareholders for the formation of a company, and they can be the same as the directors. The owner of the sole proprietorship requires to be one of the directors of the private limited company.

Capital – The company needs to have a minimum capital (authorized) of 1 Lakh rupees for the formation of Proprietorship to Pvt Ltd Company.

Benefits of a Private Limited Company

Capital expansion – A proprietorship is limited to the capital of the owner, where the private ltd company has fundraising options and raises higher capital for expansion.

Limited liability – A sole proprietor is responsible for the losses, and his personal assets will also be attached to repay creditors in case of losses. In case of a private limited company, such liabilities are limited by warranty or shares.

Continuity – A proprietorship is dependent on a single person, so its existence is limited to the ability of the proprietor to operate. Whereas, the private limited company has a separate legal entity and is not bound by the existence of a single person.