A sole proprietorship is a type of business owned by a single person, i.e., there is no distinction between the owner of the business and the business. So, the owner directly controls all aspects of the business. Also, he or she is accountable for its functioning and owns its profits or losses.
A private limited company is a business model that limits owner liability to its shares. Also, it limits the number of shareholders to 50. Multiple executives are appointed to head a Private Limited company. Because it restricts its shareholders from trading shares publicly, therefore it is termed a private company.
Why convert to a Private Limited Company?
There are many reasons for you to conversion of proprietorship into company. Some of the reasons are listed below:
- A Private Limited Company (PLC) limit the liability of its shareholders to their shares.
- A PLC minimizes the risk of its takeovers with multiple shareholders trading in shares.
- A Private limited companies is incorporated under law. So it continues to exist even if the owner dies.
- A PLC does not restrict the capital or options of raising business investment to one person.
- A PLC pay corporate tax on their profits, but the dividends that the shareholders receive are not taxed.
- A PLC determines the taxes as per the member’s income tax rate.
- A proprietorship fails to reach large-scale business standards, whereas Private limited companies can attract high-caliber employees that greatly help the company’s growth.
- The burden of the operations and running of the business falls on one person in a sole proprietorship, whereas, in an LTD, the business is much easier to manage.
Pre-conditions before converting a Sole Proprietorship to a Private Limited Company
The proprietor must adhere to the following conditions before converting its Proprietorship into a private limited company:
- The proprietor must hire atleast one director to head the proposed Private Limited Company as it can’t be headed alone.
- The proprietor must maintain at least two shareholders
- The proprietor must have the consent of everyone who once held debt to him.
- The proprietor must maintain the financial documents pertaining to its Proprietorship.
Also Read: Conversion of Private Company into Public Company
Required documents for converting a Sole Proprietorship into a Private Limited Company
The proprietor must attach the following documents along with the conversion application:
- An agreement of conversion addressed to the Registrar of Companies
- Digital Signature Certificate (DSC) of all directors
- Director Identification Number (DIN) of all directors
- Altered Memorandum and Articles of Association (MOA/AOA)
- Form 32 – To register the change or updation in the Board of Directors
- Form 18 – To notify the situation of the registered office of the proposed company
- Form 1 – To validate the name availability of the newly formed company
- Letter of authority or Power of Attorney (POA)
Process for Conversion
The following points enlist the complete procedure for conversion of a Sole proprietorship to a Private Limited Company:
- Complete the slump sale formalities as a proprietor.
- Appoint another director to co-head the proposed private limited company.
- Register for and obtain the DIN and DSC for the said director and the existing member.
- File the application to reserve the name of the proposed company.
- Draft the Memorandum of Association which specifies the object of the company.
- Draft the Articles of Association that specifies the code of conduct for the proposed company to observe.
- File the application for incorporation of the Pvt Ltd Company.
- Obtain the Certificate of Incorporation.
- Get the PAN and TAN of the newly incorporated private limited company.
Also Read: Why should you convert your Partnership firm into an LLP?
Convert your Proprietorship to a Private Limited Company with Registrationwala
To convert your sole Proprietorship into a private limited company, we will provide you with the following services so as to aid you in the entire conversion process. Our services include:
- Register for and obtain the DINs and DSCs for all your proposed directors.
- Register the proposed company’s name with the authorities.
- Furnish the requisite documents.
- Apply for and submit the conversion application with the MCA.
- Post MCA verification, deliver you the Certificate of Incorporation of the newly formed company.
- Get the PAN and TAN cards for the newly incorporated company.
- Further assisting you in maintaining your books
Registrationwala.com is a leading legal consultancy firm providing comprehensive services relating to sole Proprietorship to private limited company conversion.
So, take your first steps towards this conversion and reach out to us.
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