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Proprietorship to Private Limited Conversion
-Conversion of proprietorship firm to Private Ltd. Company
- Work handled by professionals
- Completely online process
- Get your conversion at an affordable cost
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Proprietorship to Private Limited Conversion
It is good practice to start of small in an unincorporated manner, but that does allow the business to scale up and reach maximum growth as the many of the features are missed out in a proprietorship firm. The features such as transfer of shares, limited liability, easy funding process etc are a major things a growing business must consider when they are exploring. Conversion of proprietorship firm to a private limited can be done by executing a proprietorship takeover agreement.
A person can convert its sole proprietorship to pvt ltd under companies act, 2013 either forming a new company with takeover objects in its objects, else an existing company can takeover the proprietorship firm. All the assets and liabilities of the sole proprietorship firm gets transferred to the company as on cut off date. There are no tax implications when we convert proprietorship to pvt ltd as the same is exempted under income tax act subject to some conditions.
At Unilex Consultants we provide you a hassle free conversion of sole proprietorship to pvt ltd which would be dealt by our professionals within a time frame of 10-15 days, subjective to governmental processing time. Our team takes care of the proprietorship to private limited conversion process and aids in provide you the realistic estimation of cost.
Advantages of proprietorship conversion to Pvt. Ltd.
Stamp Duty Free – As the assets are already in the part of the company’s name there is no need of paying any exemplary stamp duty for the transfer of assets.
Credibility – A private limited company will have more credibility and brand value in terms of the general public.
Investment – A private limited company would attract more investment and angel investors attention as a result the company would have more flow and progress.
Taxation – The overall process for transferring is taxation free and can be done without any problems provided meeting the requirements.
Documentation for converting firm to Company
Last ITR of firm
Last year financials of firm
KYC of proposed Directors
Utility bill of address of company
Process for converting proprietorship firm to Company
- Step-1: Gathering information
- Step-2: Preparing takeover agreement
- Step-3: Filing necessary ROC forms
- Step-4: Company Incorporation
Requirements for Conversion
Before initiating the conversion of a proprietorship into a private limited company, the proprietor must ensure compliance with the following requirements:
- Agreement: An agreement should be entered between the sole proprietor and the private limited company, outlining the terms and conditions of the conversion. This agreement may include details such as the transfer of assets and liabilities, valuation of the business, and other relevant words.
- Memorandum of Association (MOA): The MOA of the Private Limited Company must include an object clause that explicitly states the intention to take over a sole proprietorship concern. This inclusion ensures legal clarity regarding the conversion process.
- Transfer of Assets and Liabilities: All the assets and liabilities of the proprietorship firm must be transferred to the company. This transfer should be appropriately documented and recorded to ensure a smooth transition.
- Directorial Board and Shareholding: The sole proprietor should become a part of the directorial board of the private limited company. They must hold a minimum of 50% of the voting power in the company. It’s important to note that a company must have a minimum of two directors as per the incorporation rules.
- Minimum Share Capital: The incorporation rules of a private limited company mandate a minimum share capital requirement of Rs 1 00,000 (or the applicable currency equivalent). The proprietor must ensure compliance with this minimum capital requirement during the conversion process.
Difference between the Proprietor and Private Limited Company
Before discussing the conversion, we will discuss the difference between a sole proprietor and a Private Limited Company.
| Sr. No | Difference | Sr. No Difference Sole Proprietorship Private Limited Company | Private Limited Company |
|---|---|---|---|
1 | Registration | Informal Registration | It is registered under the Companies Act, 2013 |
2 | Legal status | Is not a separate legal entity | Is a separate legal entity under the Companies Act,2013 |
3 | Transferability of shares | Not transferable | Shares are transferrable |
4 | Liability | Unlimited | Limited by the extent of shares |
5 | Members | One member only | Minimum two member Maximum 200 |
6 | Taxation | Income tax is the same for the proprietor and the proprietorship | The profits are taxed at 30% surcharges and cess as applicable |
7 | Compliance | – | Annual returns and annual accounts must be filed with the ROC every year. |
Yes, a sole proprietorship can be converted into a Private Limited Company by executing an agreement.
As per the amendment in the Companies Act, 2013 there is no minimum amount of paid up share capital required for the Incorporation. There is no upper limit on having the authorized capital and the paid up capital. It can be increased any time, by payment of additional stamp duty and registration fee.
The liability of the members is limited to their shares. Death or insolvency of the member does not affect the existence of the company. A Private Company has more creditworthiness due to its stringent compliance and disclosure
Yes, a NRI or a foreign national can become the director in the private limited company, subject to the condition that out of all the directors’ atleast one director should be resident in India for more than 182 days. Apart from one condition above, there is no other condition attached to it.
Certificate of Incorporation PAN Card Acknowledgement Memorandum of Association (MOA) Articles of Association (AOA) Board Resolution as per the format is given by Bank Bank Account opening form as per respective bank.
Capital gain on conversion of sole proprietorship firm is not applicable only if the conditions as per Income Tax Act 1961 is satisfied, otherwise a sole proprietor has to pay capital gain tax.
Yes, the consent of sole proprietor is mandatory for conversion into company.
Yes, the sole proprietor may become a director in the company on conversion.
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