Conversion of Sole Proprietorship to Private Limited Company

1
Conversion of Sole Proprietorship to Private
Limited Company
When a business entity is formed, the most
preferred choice is a sole proprietorship
structure due to its low compliance needs. Once
your business grows, it is important to take
steps to limit the liabilities plus minimize the
burden of compliance on a single person. The best
way out here is to convert your sole
proprietorship firm into a private limited
company. The main difference between a sole
proprietorship and a private limited company is
the liability of the members plus directors.
Besides, there is a requisite amount of share
capital needed for the proprietorship
company. In this informative post, we will
discuss the process of conversion of sole
proprietorship into private limited company,
conditions and its benefits.
2

• What are the key advantages of conversion from
  sole proprietorship to private limited company?
• A private limited company enjoys many benefits
  when compared to a sole proprietorship type of
  business. Some of the major benefits are
  mentioned below.
• Separate legal existence
• We know that the private limited company is a
  separate legal entity as well as its existence
  is separate from its members. It makes the
  business possible to own assists plus enter into
  contracts in the name of the private limited
  company or even sue a 3rd party in case of a
  dispute. The members of a company have no
  personal liability to the creditors of a firm
  for the company's debts beyond their holding in
  the business.
• Easy transferability
• You as an owner can be transferred to an
  individual or even to a Company by transferring
  the shares with the consent of shareholders. It
  is very simple whereas in proprietorship, you can
  not do such transfer as they are not permitted.
• Limited Liability of Directors
• In a private limited company, your personal
  assets (director's personal assets) remain
  untouched if there are any outstanding debts on
  your firm. Keep in mind that only the amount
  invested for incorporation or
• the personal assets of your company are to be
  sold off for paying off the outstanding debts.
• Taxation
• Companies have to pay tax on their taxable
  profits. There is a broader range of allowances
  as well as tax deductible costs that can be
  offset against the profit of company.

3

• Continues in existence
• A private limited company has a perpetual
  succession as it is a separate legal entity. It
  is not affected by the death of any member. That
  means it continues to be in existence regardless
  of the changes in the membership.
• Conditions for conversion of sole proprietorship
  firm in a private limited company
• A sale agreement or takeover agreement needs to
  be entered into between you ( sole proprietor)
  and company
• All the assets and liabilities of the sole
  proprietorship should be transferred to the
  company
• The MOA (memorandum of association) needs to
  carry the object "The take over of a sole
  proprietorship".
• Your shareholding must not be less than 50
  percent of the voting power, and the same 50
  percent must continues to be held for a period
  of five years. You do not receive any additional
  advantages (directly or indirectly) except to
  the extent of shares held.
• Procedure of Converting a Sole Proprietorship
  into a Private Limited Company
• Slumps sale formalities you have to complete the
  steps related to slump sale first.
• Secure the DIN and DSC for the directors In the
  2nd step, you have to get the unique director
  identification number (DIN) and digital proof of
  authorization (DSC) for all the directors.
• Apply for name availability In this step, you
  have to check and apply for name availability in
  the form 1.

4

• Prepare MOA and AOA In this step, you have to
  draft the articles of association as well as
  memorandum of association. In the memorandum of
  association, the prime aims of the Business must
  be stated.
• Apply for company registration online In this
  step, you must go online for the process of your
  company registration.
• Submit all the documents all the required
  documents must be submitted online.
• COI (secure Certificate of incorporation) from
  the registrar After this, you must secure the
  Certificate of incorporation from the registrar.
• Apply for PAN/ TAN number you must apply for
  PAN/TAN number with the authority.
• Update your bank details Now, you have to update
  your bank details to carry out the transactions.
• What documents are required for the conversion?
• Conversion of a sole proprietorship into a
  private limited company needs the following
  documents
• ID and address proof of the directors for
  example- PAN Card of directors and shareholders
  and foreign individuals can provide passports.
• Letter of authority or POA
• Latest Passport size photograph of all directors
  and shareholders
• Proof of your registered office address that
  could be a utility bill copy, sale deed, rent
  agreement.
• You have to submit an income tax return
  acknowledgment.
• With respect to forms, you need to furnish form
  1, form 18 and 32.

5

• Rental agreement if rented.
• No Objection Certificate or NOC of Landlord.
• The Documents and forms must be uploaded on the
  website of the ministry of corporate affairs.
  After the completion of all the procedures and
  documents submission, the MCA validates the
  prescribed compliance needs. In case they find
  it satisfactory, the business entity will be
  provided with a Certificate of incorporation and
  it gives birth to your new private limited
  company.
• To convert a sole proprietorship into a private
  limited company or public limited company, you
  can get in touch with ExpertBells. To convert a
  sole proprietorship into a private limited
  company can take about 15 to 20 days. Remember,
  the time taken depends on relevant documents
  provided by sole proprietor and speed of
  approvals from government.
• Also, to make sure speedy Private Limited Company
  Registration, pick a unique name for the
  proposed Company and ensure you have all the
  needed documents ready before starting the
  registration process.