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Convert a Sole Proprietorship to Private Limited Company

No more delays or difficulties! Register your business with India’s #1 provider of business incorporation services. Get a 7 day Guaranteed document upload to the MCA or receive a full refund T&C* 

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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.

Benefits of Conversion from Proprietorship to Private Limited Company

There are many benefits to converting a proprietorship to a private limited company. Some of the key benefits include:

  • Limited liability: In a proprietorship, the owner is personally liable for all the debts and obligations of the business. This means that if the business fails, the owner’s personal assets, such as their home or car, can be used to pay off the debts. In a private limited company, the liability of the shareholders is limited to the amount of money they have invested in the company. This means that if the business fails, the shareholders’ personal assets are not at risk.
  • Access to capital:Private limited companies are more likely to be able to raise capital from investors, as they are seen as being a more stable investment. This is because investors are less likely to lose their money if the company is a private limited company with limited liability.
  • Credibility: A private limited company is seen as being more credible than a proprietorship. This is because it is a separate legal entity with its own set of assets and liabilities. This can make it easier to do business with other companies and organizations.
  • Transferability of ownership: The ownership of a private limited company can be easily transferred to another person or entity. This can be useful if you want to sell your business or bring in new investors.
  • Tax benefits: Private limited companies can avail of certain tax benefits, such as lower corporate tax rates and depreciation allowances.
  • Compliance requirements: Private limited companies have more compliance requirements than proprietorships. This can be a burden, but it also helps to protect the interests of the shareholders and creditors.

However, there are also some disadvantages to converting a proprietorship to a private limited company. Some of the key disadvantages include:

  • Cost: The cost of converting a proprietorship to a private limited company can be significant. This includes the cost of legal fees, registration fees, and stamp duty.
  • Administration: Private limited companies have more administrative requirements than proprietorships. This includes the need to keep more records and file more reports.
  • Regulation: Private limited companies are more regulated than proprietorships. This means that they are subject to more government rules and regulations.

Procedure to Convert Proprietorship to Private Limited Company

The procedure to perform takeover of sole proprietorship by private limited company in India is as follows,

  • 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

 

Documents Required for Conversion of Sole Proprietorship to Private Limited Company

PAN Card: All directors need to give a copy of their PAN Card. This is for identity proof

Aadhar Card or Voters ID: This is needed for address proof.

Photos: Directors should provide passport size photos

Proof of Business Place: If the directors own the place of business, they need to show proof

Rental Agreement: If the business place is rented, a rental agreement is needed

NOC from Landlord: The landlord should give a No Objection Certificate (NOC)

Bill: A copy of an electricity or water bill is needed.

Forms for MCA:
Form 1: This form should be sent with the MOA, AOA, and other documents
Form 18: This form gives the details of the registered office
Form 32: This form has details about the directors.

Difference between the Proprietor and Private Limited Company

CharacteristicProprietorshipPrivate Limited Company
Number of ownersOneMinimum of two, maximum of 200
Liability of ownersUnlimitedLimited to the amount invested
Legal entityNoYes
Transferability of ownershipEasyMore difficult
Raising CapitalDifficultEasier
TaxationOwner’s personal income taxSeparate corporate tax
Compliance requirementsFewMore

Timeline

Free Consultation and Documentation
  • Our Expert team resolve your queries. Our consultation is completely free.
Action Required by you
  • You Need to fill up the draft, Make Payment and Submit Documents to Khata Dekho
Action By Khata Dekho
  • Once the Documents are uploaded we’ll start the step -by-step process of Incorporation

Frequently Asked Questions (FAQs)

There is no fixed duration for how long a Sole Proprietorship can exist alongside a newly formed Private Limited Company. It largely depends on the business owner’s strategic decisions and legal compliance. In most cases, once the Private Limited Company is established, the Sole Proprietorship may be dissolved or its operations may be integrated into the new company. Legal and financial considerations should guide this transition.

Yes, it is possible to transfer permits and licenses from a Sole Proprietorship to a Private Limited Company, but the process can vary based on the specific permits, licenses, and regulatory requirements in your jurisdiction. Generally, the steps may include:

  • Review Legal Requirements: Examine the terms and conditions of your permits and licenses to understand if they are transferable.
  • Notify Regulatory Authorities: Inform the relevant regulatory authorities about your intention to transfer the permits and licenses to the new entity.
  • Comply with Regulations: Ensure that the Private Limited Company meets all the eligibility criteria and compliances required for the permits and licenses.
  • Apply for Transfer: File the necessary applications for the transfer, providing all required documentation.
  • Pay Fees and Taxes: Pay any applicable fees or taxes associated with the transfer.
  • Wait for Approval: Await approval from the regulatory authorities, which may involve inspections or reviews.
  • Update Records: Once approved, update the company’s records to reflect the transfer.
SPICe+ has been integrated with Punjab National Bank, SBI Bank, ICICI Bank, Kotak Mahindra Bank, Bank of Baroda, UBI, IndusInd Bank, and HDFC Bank for the purpose of opening a bank account. Over time, numerous public and private sector banks will also be integrated with SPICe+.
Yes,it is mandatory for all new companies incorporated all over India.
SPICe+ is a comprehensive web form that combines 10 services provided by three central government ministries and departments. In contrast, SPICe refers to an electronic form. When comparing the old SPICe form to the new SPICe+ form, the latter provides an expanded range of services within a single form.
Yes, two names can be permitted in Part A of SPICe+ if applied separately. Each name will be treated as a separate application, and the approval will be subject to the availability and compliance with the applicable rules and regulations.
Yes, it is necessary to have a minimum of two directors in a Private Limited Company Registration.
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