Convert a Sole Proprietorship to Private Limited Company
How To Convert Proprietorship To Private Limited Company
When the business and revenues scale up, there is a need to segregate the tax filings and bank accounts of a sole proprietor with that of his business. Here, is how we help you convert a Sole Proprietorship to Private Limited Company –
Return Filing
How to Convert Proprietorship to Private Limited Company - Overview
In India, many entrepreneurs initially start their business as a sole proprietorship because of its low compliance requirements. After certain years, the business will boom and the revenues involved will become more.
Now, in order to limit the liability and to detach the bank accounts and tax filing of an individual, a sole proprietorship to private limited company conversion will be done.
By conversion of proprietorship into private limited company under companies act 2013, it becomes a separate legal entity thereby reducing the risk of liability and the personal assets will remain untouched except in case of fraud.
The private limited company will be governed under the companies act, 2013, and the shares are held privately and not offered to the public. Similarly, the structure of taxation will be unique under income tax act, 1961, and different from the sole proprietorship, which considers the income as individual income.
Takeover of Sole Proprietorship by Private Limited Company in India: Benefits
Registering a company offers many benefits. A registered company makes it genuine and increases the authenticity of your business.
- Shields from personal liability and protects from other risks and losses.
- Attracts more customers
- Procures bank credits and good investment from reliable investors with ease.
- Offers liability protection to protect your company’s assets
- Greater capital contribution and greater stability
- Increases the potential to grow big and expand
- You will also get Zero Balance Current Account - Powered by DBS Bank *
- Shareholders have a right to appoint the directors to act on behalf of him.
- Unlike a sole proprietorship, even after the death of directors/ shareholders the company will exist without any discrepancies.
- The shareholders and the directors will get complete immunity from being sued by the third party except personal issues.
- It attracts lower tax rates and subsidies under the Income Tax Act, 1961.
- The profit of the private limited company is subjected to the tax rate of 30% + surcharge & cesses as applicable.
Conditions to Be Followed Prior Converting a Sole Proprietorship to Private Limited Company
- After incorporating a new private limited company, all the assets and liabilities of the old sole proprietorship will be completely transferred to the company.
- Even after the conversion takes place, the old sole proprietorship will hold 50% of shares in a new private limited company. i.e 50% of the voting rights will be held by a sole proprietorship.
- The old sole proprietor will hold shares for a minimum period of 5 years from the date of incorporation of a new private limited company.
- Similarly, there will not be any monetary consideration between a sole proprietorship and private limited company as it is a mere conversion, not sale.
Procedure to Convert Proprietorship to Private Limited Company
- Step 1: Application for DSC (Digital Signature Certificate).
- Step 2: Apply for the DIN (Director Identification Number)
- Step 3: Application for the name availability.
- Step 4: Filing of the EMOA and EAOA to register a private limited company
- Step 5: Apply for the PAN and TAN of the company
- Step 6: Issued certificate of incorporation by RoC with PAN and TAN
- Step 7: Opening a current bank account on the company name
How Can We Help in Registering Your Company in India?
The Private Limited Company Registration process is completely online, so you don't even have to leave your home to get your entity registered. At cadeskindia.com , we complete the Company Registration online within 14 days.
CA Desk India Company Registration package includes:
- DIN and DSC for two Directors
- Drafting of MoA & AoA
- Registration fees and stamp duty
- Company Incorporation Certificate
- Company PAN and TAN
- Zero Balance Current Account - Powered by DBS Bank *
Documents Required for Conversion of Sole Proprietorship to Private Limited Company
In India, Private Limited company registration cannot be done without proper identity proof and address proof. Identity and address proof will be needed for all the directors and the shareholders of the company to be incorporated. Listed below are the documents that are accepted by MCA for the online company registration process acceptable.
Identity and Address Proof
- Scanned copy of PAN Card or Passport (Foreign Nationals & NRIs)
- Scanned copy of Voter’s ID/Passport/Driver’s License
- Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill.
- Scanned passport-sized photograph specimen signature (blank document with signature [directors only])
For the foreign nationals, an apostilled or notarized copy of the passport has to be submitted mandatorily. All documents submitted should be valid. The residence proof documents like the bank statement or the electricity bill must be less than 2 months old.
Registered Office Proof
For online company registration in India, the company must have a registered office in India. To prove admittance to the registered office, a recent copy of an electricity bill or the property tax receipt or water bill must be submitted. Along with the rental agreement, utility bill or the sale deed and a letter from the landlord with her/his consent to use the office as a registered office of the company should be submitted.
- Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill
- Scanned copy of Notarized rental agreement in English
- Scanned copy of No-objection certificate from the property owner
- Scanned copy of sale deed/property deed in English (in case of owned property)
E-Form Spice 32
It is an incorporation e-form provided at the final stage of incorporation of a company. Here, all the mandatory details should be filled in this form and submitted along with the required documents.
FAQs on Proprietorship Firm to Private Limited Company Conversion
Yes, any individual can start a company who is of Indian origin/Non Resident Indian( NRI)/ Overseas Citizen of India(OCI)/ Person of Indian Origin(PIO). Even any foreign nationals can also start a company in India with the mandatory documents. But there should be a minimum of 2 directors and a maximum of upto 200 directors.
No, the ownership of the sole proprietorship is non-transferable
The Income Tax Return Filing Compliance Requirement for Sole proprietorship ownership is applicable only if the turnover is more than ₹2.5 lakhs
Yes, all the assets and liabilities of a Sole proprietorship should be transferred to the new private limited company after sole proprietorship to private limited company conversion.
A new bank account under the name of Private Limited Company needs to be opened and should close the one used for the sole proprietorship. Hence, all cheques and bank transfers must be made under the Private Limited Company.
Recent Updates on Converting Sole Proprietorship to Private Limited Company in India
Registering a PLC in the MCA portal has now become easier.
10-Jun-20: As a sole proprietorship business flourishes, it looks to convert itself into a private limited company to extract the inherent benefits. The Government has now facilitated the registration of new PLCs on the MCA portal. Now, registration under GST, EPFO, ESIC and Professional Tax can be done on the MCA portal, while incorporating the company itself. However, the entities will need to comply with the provisions of GST Act, ESI Act and MP Act.
NIIT Among top 20 Training Outsourcing
29th May: For the thirteenth consecutive year, NIIT, a skill development company is on the list of top 20 outsourcing companies for training. The Training Industry Inc. made this list based on industry visibility, impact, innovation, company size, growth potential, geographical reach, and strength of clients
MCA Offers Relaxations for Conducting Annual General Meeting
07th May: In light of the current global crisis, MCA has granted relaxation for conducting Annual general meetings. Earlier, the presence of the member at the venue was not required. Now, this can be done online with e-voting and postal ballot. There is no requirement to travel inter-state or cross the border for AGM.
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