Conversion of Sole Proprietorship to Private Limited Company - PowerPoint PPT Presentation

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Conversion of Sole Proprietorship to Private Limited Company

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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. – PowerPoint PPT presentation

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Title: 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.
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