Overview of Conversion of Sole Proprietorship into Private Limited Company
Though due to lack of compliance, people start their business as sole proprietors, as the business of a company grows, it does not fit the limitations of the sole proprietorship. With growth, it is aiming to meet with the business world, and the drawbacks of a sole proprietorship do not meet its growth; thus, it goes for conversion into a private limited company. A private limited company has so many advantages over a proprietorship.
For converting a sole proprietor into a private company, an agreement has to be signed between the sole proprietorship and the newly incorporated private limited company for the sale of its business. Such an incorporated Private company should mention in its Memorandum of Association that it has taken over a sole proprietorship. The sole owner of the proprietorship should be made a part of the board of directors with the voting right.
Conditions required for conversion into Private Limited Company
Basic requirements of Converting Sole Proprietorship into a Private Company
According to the rules and regulations of the Company Act, 2013, in order to incorporate any certified company in India, the followings should be required:
- Number Of Directors: A private limited company must have a minimum of two directors and a maximum of 15.
- Unique Name
The name of the private limited company should be unique, and it should not resemble any existing companies or trademarks in India.
- Minimum Share Capital
No minimum share capital required for the Incorporation of a company.
- Designated Office
The registered office of a company does not have to be a commercial space. Even a rented home can be the registered office.
- Memorandum Of Association
One of the objectives of the Memorandum of Association (MOA) should read an expression “the takeover or acquisition of a sole proprietorship concern”.
- Annual Returns
The private limited company should file an annual financial accounts statement and annual returns with the registrar of the company every year.
- Number of Shareholders
There should be at least two shareholders in the private limited company.
- DIN and DSC
All the directors of a newly incorporated private company must have DSC and DIN.
Benefits of Conversion of Sole Proprietorship into Private Company
A private limited company has many benefits, such as:
Documents Required for conversion to Private Limited Company
The documents required for the conversion of a sole proprietorship into a Private Limited Company are:
Other documents required with the appropriate Forms:
Procedure for Conversion of Sole Proprietorship to Private Limited Company
Conditions to be followed before converting a sole proprietorship to a private limited company
The steps to be followed for converting a sole proprietorship into a Private Limited Company:
After completion of all the above-mentioned procedures, the MCA verifies the application and the documents filed with it, and after satisfaction, it will issue a certificate of Incorporation. This certificate of Incorporation will give new birth to the private limited company.