Overview on How to Convert Proprietorship to Private Limited Company

In India, many entrepreneurs initially start their business as a sole proprietorship because of its low compliance requirements. After certain years, the business will boom and the revenues involved will become more.

Now, in order to limit the liability and to detach the bank accounts and tax filing of an individual, a sole proprietorship firm will be converted to a private limited company.

By conversion of proprietorship into private limited company under companies act 2013, it becomes a separate legal entity thereby reducing the risk of liability and the personal assets will remain untouched except in case of fraud.

The private limited company will be governed under the companies act, 2013, and the shares are held privately not offered to the public. Similarly, the structure of taxation will be unique under income tax act, 1961, and different from the sole proprietorship, which considers the income as individual income.

Takeover of Sole Proprietorship by Private Limited Company in India: Benefits

Registering a company offers many benefits. A registered company makes it genuine and increases the authenticity of your business.

• Shields from personal liability and protects from other risks and losses.
• Attracts more customers
• Procures bank credits and good investment from reliable investors with ease.
• Offers liability protection to protect your company’s assets
• Greater capital contribution and greater stability
• Increases the potential to grow big and expand
• You will also get Zero Balance Current Account - Powered by DBS Bank *
• Shareholders have a right to appoint the directors to act on behalf of him.
• Unlike a sole proprietorship, even after the death of directors/ shareholders company will exist without any discrepancies.
• The shareholders and the directors will get complete immunity from being sued by the third party except personal issues.
• It attracts lower tax rates and subsidies under the Income Tax Act, 1961.
• The profit of the private limited company is subjected to the tax rate of 30% + surcharge & cesses as applicable.

Checklist for Registering a Company in India

As per the rules and regulations of 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 must have at least two directors and at most, there can be 15. Of the directors in the business, at least one must be a resident of India.

Unique Name

• The name of your business must be unique. The suggested name should not match with any existing companies or trademarks in India.

Minimum Capital Contribution

• There is no minimum capital amount for a company. A company should have an authorized capital of at least Rs. 1 lakh.

Registered Office

• The registered office of a company does not have to be a commercial space. Even a rented home can be the registered office, as long as an NoC is obtained from the landlord.

Memorandum Of Association( MOA)

• In the objective clause of Memorandum Of Association (MOA), there should be a phrase present “ the takeover or acquisition of a sole proprietorship concern”.

Annual returns

• The private limited company should file an annual financial accounts statement and annual returns with the registrar of the company every year.

How to Register a Company Online? - A detailed registration process?

Company Registration in India will boost the progress of startups and provide an additional edge over those who have not registered. The Ministry of Corporate Affairs governs the company registration process with rules and regulations framed in accordance with the law.

Conditions to be followed prior converting a sole proprietorship to private limited company

• After incorporating a new private limited company, all the assets and liabilities of the old sole proprietorship will be completely transferred to the company.
• Even after the conversion takes place, the old sole proprietorship will hold 50% of shares in a new private limited company. i.e 50% of the voting rights will be held by a sole proprietorship.
• The old sole proprietor will hold shares for a minimum period of 5 years from the date of incorporation of a new private limited company.
• Similarly, there will not be any monetary consideration between a sole proprietorship and private limited company as it is a mere conversion, not sale.

Procedure to Convert Proprietorship to Private Limited Company

• Step 1: Application for DSC (Digital Signature Certificate).
• Step 2: Apply for the DIN (Director Identification Number)
• Step 3: Application for the name availability.
• Step 4: Filing of the EMOA and EAOA to register a private limited company
• Step 5: Apply for the PAN and TAN of the company
• Step 6: Issued certificate of incorporation by RoC with PAN and TAN
• Step 7: Opening a current bank account on the company name

How can we help in Registering your Company in India?

The Private Limited Company Registration process is completely online, so you don't even have to leave your home to get your entity registered. At Barrister Babu, we complete the Company Registration online within 14 days.

Barrister Babu Company Registration package includes:

• DIN and DSC for two Directors
• Drafting of MoA & AoA
• Registration fees and stamp duty
• Company Incorporation Certificate
• Company PAN and TAN
• Zero Balance Current Account - Powered by DBS Bank *

Documents Required for Conversion of Sole Proprietorship to Private Limited Company

In India, Private Limited company registration cannot be done without proper identity proof and address proof. Identity and address proof will be needed for all the directors and the shareholders of the company to be incorporated. Listed below are the documents that are accepted by MCA for the online company registration process acceptable.

Identity And Address Proof

• Scanned copy of PAN Card or Passport (Foreign Nationals & NRIs)
• Scanned copy of Voter’s ID/Passport/Driver’s License
• Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill.
• Scanned passport-sized photograph specimen signature (blank document with signature [directors only])

For the foreign nationals, an apostilled or notarized copy of the passport has to be submitted mandatorily. All documents submitted should be valid. The residence proof documents like the bank statement or the electricity bill must be less than 2 months old.

Registered Office Proof

For online company registration in India, the company must have a registered office in India. To prove admittance to the registered office, a recent copy of an electricity bill or the property tax receipt or water bill must be submitted. Along with the rental agreement, utility bill or the sale deed and a letter from the landlord with her/his consent to use the office as a registered office of the company should be submitted.

• Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill
• Scanned copy of Notarized rental agreement in English
• Scanned copy of No-objection certificate from the property owner
• Scanned copy of sale deed/property deed in English (in case of owned property)

E-Form spice 32

It is an incorporation e-form provided at the final stage of in corporation of a company. Here, all the mandatory details should be filled in this form and submitted along with the required documents.

Recent Updates on Converting Sole Proprietorship to Private Limited Company in India

Registering a PLC in the MCA portal has now become easier.

10-Jun-20: As a sole proprietorship business flourishes, it looks to convert itself into a private limited company to extract the inherent benefits. The Government has now facilitated the registration of new PLCs on the MCA portal. Now, registration under GST, EPFO, ESIC and Professional Tax can be done on the MCA portal, while incorporating the company itself. However, the entities will need to comply with the provisions of GST Act, ESI Act and MP Act.

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