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How to Convert Sole Proprietorship into Pvt Ltd Company Registration?

Pvt Ltd Company Registration

Do you want to expand your business in the dynamic business landscape? So, converting the sole proprietorship into a Pvt Ltd Company Registration is a wise decision. It will help you in the growth and expansion of your business. Any proprietor who wants to extend their business and get access to the numerous benefits can convert their sole proprietorship into Pvt Ltd Registration. You can convert your company into a Private Limited Company Registration with the help of a sale/ takeover agreement. Here, we will discuss everything that you need to know about this conversion.

Before anything else, let’s take a quick glimpse at sole proprietorship & Pvt Ltd Registration-

Sole Proprietorship

A sole proprietorship is a business that has been owned & managed by a single individual. It is the easiest and simplest form of the company. After registering it with local authorities, you can run your business as a sole proprietor by your legal name and maybe by a different trade name. If someone wants to establish a company, it is the most accessible type, as there is a lack of government regulations for a sole proprietorship. It has unlimited liability, i.e., the sole proprietor is individually authorized for all the profits and also responsible for the losses & debts of the company. A sole proprietorship begins and ends with the decision of the sole proprietor or after their death.

Pvt Ltd Company Registration

Private limited company registration is the most common structure for business. Pvt Ltd Registration is a privately held company that has a limited liability. It has been considered a separate legal entity from its owners and is one of the most popular business structures in the country. The Private Limited Company Registration process is tricky, but you can navigate it easily with professional assistance. To form a private limited company, at least two shareholders & 2 directors are needed. The maximum number of shareholders for this company can be 200, and at least one director must have citizenship of India. The name of the company must be unique and not similar to the other registered name of the company.

Law that Governs the Conversion of a Sole Proprietorship to a Pvt Ltd Company Registration

The Companies Act of 2013 & the Income Tax Act of 1961 has governed the conversion of a Sole Proprietorship to a Pvt Ltd Company Registration in India.

  • Companies Act of 2013 signifies the process, requirements, and compliances for converting a sole proprietorship into a Private limited registration.
  • The Income Tax Act of 1961 has governed the taxation aspects of businesses in India that, includes conversion of sole proprietorship into Pvt Ltd. Company registration online in India.

Conditions for the Conversion of the Sole Proprietorship into Pvt Ltd Company Registration

You have to remember some of the important conditions during the conversion of sole proprietorship into Pvt Ltd Company Registration. Here we will tell you about such conditions-

  • Transfer Agreement Execution 

After the registration of a private limited company, the sole proprietor and the company must have to sign a formal takeover agreement stating the terms and conditions of the conversion.

  • MOA i.e. Memorandum of Association

The MOA, i.e., Memorandum of Association of Pvt Ltd Company registration online, must include the statement “The takeover of a sole proprietorship firm.”

  • Transfer of Assets & Liabilities

All the assets & liabilities of the old sole proprietorship must be transferred to the newly incorporated private company completely

  • Shareholder

The old sole proprietor must have to hold the shares of the newly incorporated private limited company.

Requirements of Converting Proprietorship into a Pvt Ltd Company Registration

Firstly you have to register a Pvt Ltd Company Online for the conversion of proprietorship into Pvt Ltd Company Registration. And then, you have to take over the sole proprietorship via MOA, i.e., Memorandum of Association, and transfer all the benefits & liabilities to the limited company. Here are the basic requirements for the same-

  • Directors

There is a requirement of minimum of two directors for online private limited company registration. One can be the proprietor himself, and the other can be a friend or relative.

  • DIN, i.e., Director Identification Number

For private limited company registration in India, the directors must have their DIN, i.e., Director Identification Number.

  • Shareholders

There is a requirement of minimum of 2 shareholders for Pvt Ltd Registration. The directors of the company can also be the shareholders. One of the shareholders of a Private Limited Company Registration must be the sole proprietor.

  • Capital

No minimum authorized capital has been required to register Pvt Ltd Company online.

Process of Converting Sole Proprietorship into Pvt Ltd Company Registration

The process of converting a sole proprietorship into a private limited registration includes a number of steps. It would be best to understand all the steps carefully for a flawless conversion. Steps are as given below-

  • Slump sale formalities

The sole proprietor must have to complete the slump sale formalities that include the transferring of all the assets & liabilities to the company.

  • DIN & DSC

All the directors of the new company must acquire their DIN, i.e., Director’s Identification Number, and DSC, i.e., Digital Signature Certificate, for the Private Limited Company registration process.

  • Filling SPICe+ form

The owner has to fill out the SPICe+ form that includes name reservation, incorporation, and other registrations

  • Application to Register the name of the company

Sole proprietors must have to apply for the availability of the name of the company via the SPICe+ form (Form- 1 section). Owner has to make sure that the proposed name of the company should be according to the naming guidelines of the MCA i.e. Ministry of Corporate Affairs.

  • Drafting of MOA & AOA

The proprietor must prepare the MOA, i.e., the Memorandum of Association, and the AOA, i.e., Articles of Association, of the new private limited company. In the MOA, sole proprietor must state that the old business is taken over by the company.

  • Application for company registration

The owner must have to apply for the registration of the company on the MCA portal

  • Documents submission

You must have to submit all the required documents along with the application form

  • Certificate of incorporation

After the submission of the application form and documents, RCO, i.e., Registrar of Companies, will issue the certificate of incorporation

  • Application for PAN and TAN

The owner must have to apply for the new PAN and TAN for the newly formed company

  • Modification of Bank Details

The last and most important thing is the modification of bank details as per the conversion.

Documents Required for the Converting Sole Proprietorship into Pvt Ltd Company Registration

  • PAN card or Aadhaar Card as an identity proof of all the directors involved in conversion. 
  • Address proof of all the directors (documents like Aadhaar Card, Passport, or utility bills that display residential address) 
  • Recent passport-size photographs of all the directors
  • Proof of the ownership of the business place (if the sole proprietor owns the business place)
  • Lease/ Rent agreement between the sole proprietor and the owner of the property (if the business place is rented)
  • NOC i.e., No Objection Certificate from the landlord (if the business place is owned by someone other than the sole proprietor)
  • Recent utility bills (electricity bill, water bill, etc.) for the address proof of business place.

Benefits of Converting Sole Proprietorship into Pvt Ltd Company Registration

If you opt to convert a sole proprietorship into a private limited company registration in India, hence it will prove very beneficial for the sole proprietors. It will provide you with numerous benefits that have a significant impact on the business & its operations. Here are the benefits of this conversion-

  • Limited liability

In a sole proprietorship, there is unlimited liability, i.e., the owner is individually liable for all the losses and debts, while in a private limited company, the liability of the shareholders is limited to their investment, which provides financial security.

  • Easy access to capital & funding

Private limited company can access the capital & fund easily for the expansion and can attract the investors

  • Taxation

A private limited company has to pay the tax on the basis of its profit while a sole proprietor has to pay the tax according to their income

  • Separate legal entity

Private limited company has a separate legal entity while the sole proprietorship does not have the separate legal entity 

  • Perpetual succession

The private limited company has a perpetual succession, i.e., continuous existence for law even after the death/retirement of the owner or in case of bankruptcy. In a sole proprietorship, the company does not exist after the proprietor’s death.

  • Transfer of ownership

The ownership of private limited company can be easily transferable via transferring the shares while in case of sole proprietorship, it does not possible

  • Enhancing Business Image

Converting sole proprietorship into Pvt Ltd registration enhances the professionalism, credibility, and confidence of shareholders, providing better opportunities for collaborations and partnerships.

  • Better compliance & governance

There are strict regulations for private limited company that promote the financial transparency, accountability & credibility of the company and also help in reducing the legal risks.

Final Words

If you opt to convert your proprietorship into Pvt Ltd registration, then it will help you in the growth & expansion of your business. Conversion of sole proprietorship into a Private Limited Company registration in India includes a stressful legal procedure. But you can convert your proprietorship into Pvt Ltd registration easily with the help of this comprehensive guide and the proper assistance.

Legal Pillers is here to help you throughout the process of conversion. We will assist in navigating the complexities of the process so that you can convert your proprietorship without any hassles. Our professional guidance will make sure about the execution of each step of the process with accuracy. It will help in minimizing potential hurdles and legal risks along the way. Choose Legal Pillers as your trusted partner and expand your business with affordable Pvt Ltd Company registration fees.

Converting your Sole Proprietorship into a Private Limited Company means the growth & expansion of your business.

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