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Sole Proprietorship into Private Limited Company

Need to convert from Sole Proprietorship into Private Limited?

Conversion of Sole Proprietorship into Private Limited Starting at Just Rs.15,499/- (Inclusive of all Govt. Fees).

Conversion of a Proprietorship Firm into Private/Public Company

As the proprietorship has almost no definition, besides that given to it by one of the many licenses you can take to get one (SSI, VAT or Service Tax registration, for example), transferring the business to a private limited company is easy. All you need to do is go ahead and start a private limited company and submit an agreement between the sole proprietor and the private limited company, declaring that all the assets are to be transferred to the latter.

Small is beautiful but a small unincorporated organization led by an Individual cannot assume growth on large scale without corporatizing itself. Conversion of a Proprietorship firm into a Company is known as Corporatisation. Corporatisation has its own advantages such as Limited Liability, Perpetual Succession, Transferability of shares, easy access to funds etc.

Advantages of Private Limited Company

A Pvt. Ltd. Co. is a legal entity and a juristic person established under the Act.

Member’s personal assets are safe and liability of members is limited to the assets of a company.

A company has perpetual existence i.e. it won’t be affected by the change, exit or entry of members.

Banks prefer Private limited Companies to render loans over partnership firms and proprietary concerns.

Generally, when any business idea clicks, fund is a pre-requisite to growth. A private company is the best option for this as it is easier to raise funds from VCs etc. Automatic 100% foreign direct investment is allowed in many sectors.

Sole traders and partnerships pay income tax. Companies are required to pay Corporation tax on their profits. There is a wider range of allowances and tax deductible costs that can be offset against a company’s profits.

Success means having the courage, the determination, and the will to become the person you believe you were meant to be.

Key Benefits

Automatic Transfer

All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the company.


No Stamp Duty

All movable and immovable properties of the firm automatically vest in the Company. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.


No Capital Gain Tax

No Capital Gains tax shall be charged on transfer of property from Proprietorship firm to Company.


Continuation of Brand Value

The goodwill of the Proprietorship firm and its brand value is kept intact and continues to enjoy the previous success story with a better legal recognition.


Carry forward and Set off Losses and Unabsorbed Depreciation

The accumulated loss and unabsorbed depreciation of Proprietorship firm is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company.


Conditions for Conversion

Transfer of a capital asset or intangible asset on conversion of Sole Proprietorship concern into a Private Limited Company is not treated as Transfer if following conditions are satisfied and hence not capital gain arise.

  • All the assets and the liability of the Sole proprietary concern relating to the business immediately before the succession become the assets and the liability of the company.
  • The shareholding of the sole proprietor in the private limited company is not less than 50% of the total voting power in the company and his shareholding continues to so remain as such for a time period of 5 years from the date of the succession.
  • The sole proprietor does not receive any benefit or consideration, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company.
  • All the partner of the firm immediately before the succession become the shareholders of the private limited company in the same proportion in which their capital accounts remained in the books of the firm on the date of succession.

Key Conditions:

The Proprietor receives consideration only by way of allotment of shares in company. The Proprietor shareholding in the company in aggregate is 50% or more of its total voting power and continue to be as such for 5 years from the date of conversion.

Key Requirements:

  • Shop Act Licence or Equivalent licence/NoC issued by the Gram Panchayat
  • Minimum Share Capital shall be Rs. 100,000 (INR One Lac) for conversion into a Private Limited Company
  • Minimum Share Capital shall be Rs. 500,000 (INR five Lac) for conversion into a Public Limited Co.
  • Minimum 2 Directors (for Private Limited Co.) and 3 Directors (for Public Limited Co.)
  • The directors and shareholders can be same person
  • DIN (Director Identification Number) for all the Directors
  • DSC (Digital Signature Certificate) for one of the Directors

Conversion of Sole Proprietorship into Private Limited Company

Many business person start their businesses as a sole proprietorship due to the low compliance requirements. As the business and the incomes grow, there is a need to separate the bank accounts and the tax filings of the sole proprietor and that of the business. To accomplish this separation a possible solution is to convert the sole proprietorship into a private limited company.

To convert a sole proprietorship concern into a private limited company, an agreement has to be executed between the proprietorship and the private limited company (once it is incorporated) for the sale of the business. Further, such Pvt. Ltd Co. so incorporated must have “the takeover of a sole proprietorship concern” as one of the objects in its Memorandum of Association.

FAQ

Is it necessary to have 2 directors for Private Limited Company Registration?

Yes, you need a minimum of two Directors for a private limited company. If you are sole owner, you can register as a One Person Company.

For Conversion of Proprietorship into private limited company do I have to be present in person?

The entire procedure is 100% online and you don’t have to be present at our office or any other office for closure of proprietorship & incorporation of private limited. A scanned copy of documents has to be sent via mail.

Are there any other payments to be made for incorporation certificate of private limited in addition to fee paid at the time of conversion?

There is absolutely no other payment. We will send you an invoice that is all-inclusive, with no hidden charges

Time taken by Businessgig in conversion of Proprietorship into Private Limited Company?

Businessgig can convert proprietorship into private limited company in 14-20 days. The time taken also depends on relevant documents provided by the applicant and speed of approvals from government. To ensure speedy registration, please pick a unique name for the proposed Company and make sure you have all the required documents prior to starting the registration process.

Who can be a member in Private Limited Company?

Any individual/organization can become the member of the private limited company including foreigners/NRI.

What are the Documents required for Incorporation of Private Limited Company?

The documents requirements are as follows: For Directors/Members: Pan Card ID proof- Any one (Voter ID/Aadhar Card/Driving License/Passport) Address Proof- Any one (Electricity Bill/Telephone Bill/Mobile Bill/Bank Statement) In addition, the landlord of the registered office premises must provide a No Objection Certificate for having the registered office in his/her premises and must submit his/her identity proof and address proof.

Can NRIs/Foreign Nationals become a Director in Private Limited Company?

Yes, an NRI or Foreign National can become a Director in a Private Limited Company on acquiring DIN. However, at least one Director on the Board of Directors must be a Resident India.

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