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Sole Proprietorship to Pvt. Ltd. Company

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Overview to Conversion of Sole Proprietorship into Private Company

As a company grows, the requests of business and the downsides of a control firm could necessitate a business person to begin the method for converting sole proprietorship into private limited company. A private limited company offers significant advantages over the sole proprietorship type of business, including that of limited liability, the potential to draw equity capital, a constant presence, and so on.

Proprietorship vs Private Limited Company

  • A sole proprietor would sustain with unlimited liabilities for any losses incurred. In simple terms, proprietor is liable to personally pay for any loss bear by the firm. On the other hand, the rules and regulations of a private limited company consider owner and the company a separate legal entity, thereby making liabilities of the owner limited.
  • Often sole proprietors do not have adequate fund-raising options where as private limited company enjoys the benefit of fund raising options.
  • Demise of the proprietor may end the tenure of the firm, on the other hand, private limited company rightfully appoints the legal heir to take over the affairs of the business.

Opportunities and Obstacles

These effects are important to consider for managers who need to change over from sole proprietorship to a Private Limited Company:

  • Separate Legal Existence

    Even though you have the advantage of more self-governance over the market, you are monetarily and legitimately in charge of all risk against the market, for example, for commitments and in claims.

  • Liability

    As recorded Private limited company under The Companies Act 1956, a business has a different legal status from the proprietor; the organisation members have limited liability. For sole proprietorship, loan providers may take legal action against you for debts brought about and experiment into your assets and business. Therefore, a single owner is more at risk of complete individual budgetary ruin as compared to a CEO of a Private Limited Organization.

  • Limited Capital

    Sole proprietorship regularly has reduced subsidising raising choices, regardless of whether as far as making advances from monetary establishing or as far as equity fundraising from commercial specialists – which means your roots of working capital are compelled to your cash and the moving over of any profits you make from the business.

  • Perpetual Succession

    A sole ownership’s legal presence is conditioned upon your reality. Hence your retirement or end will simultaneously mean the end of your business, in this way, your relatives and companions who are keen on proceeding with the business would certainly do not be able to do so without the managerial problem of joining the industry- which is not the case with a Private Limited Company.

  • Administrative Burden

    The density provisions of a Private Limited Company are a lot more valuable than those of sole ownership be it in the constant consistence but the issues to be dealt under sole proprietorship becomes more intricate for sole owner. Likewise, the 'Private Limited Company' is recognised by the laws, principles, and guidelines under the Indian Companies Act.


  • An agreement must be gone into between the sole proprietor and the private limited company for the exchange.
  • The Memorandum of Association (MOA) of the Private Limited Company ought to include an entity that declares – “The takeover of a sole ownership interest”.
  • All the privileges and liabilities of the sole proprietorship firm should be converted to the private limited company.

The sole owner ought to be a feature of the organisation’s directorial board with a voting rule which comprises to in any event share of that of the organisation. It might be noticed that a private limited company need to have at least two directors.

Benefits associated with Conversion of Sole Proprietorship into Private Company

  • A certified company makes it accurate and enhances the authenticity of your company.
  • Protects from personal responsibility and secure from other risks and cons
  • Draws more Clients
  • Provides bank credits and excellent investment from adequate investors
  • Protect your company’s Property
  • More exceptional capital contribution
  • Increases the capability to grow big and evolve
  • Stockholders have a right to appoint the directors to act on behalf of him.
  • Even after the death of directors/ stockholder company will exist without any discrepancies.
  • The stockholders and the directors will get complete immunity from being sued by the third party except for personal issues.
  • It involves lower tax rates and subsidies under the Income Tax Act, 1961.
  • The interest profit of the private limited company is objected to the tax rate of 30% + surcharge & cesses as applicable.

What are the basic requirements of Converting Sole Proprietorship into Private Company in India?

As per the commands and regulations of Company Act, 2013, in order to incorporate any company to be certified in India, the below options have to be met

  • Number of Directors

    A private limited business should have at least two directors and at most, there can be 15.

  • Different Name

    The title of your business must be unique. The proposed name should not resemble with any existing companies or trademarks in India.

  • Minimum Capital Share

    There is no least capital amount for 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, if NoC is obtained from the landlord.

  • Memorandum Of Association

    In the material clause of Memorandum of Association (MOA), there should be an expression present “the takeover or acquisition of a sole proprietorship concern”.

  • Yearly Returns

    The private limited company should file an annual economic accounts statement and annual returns with the registrar of the company every year.

Documents Required to Attach for submitting the SPICe+ forms

  • The Articles of Association
  • Memorandum of Association
  • Declaration by the subscribers and by the directors.
  • A confirmation for the address of the office
  • Two Months Utility Bills copy
  • Certificate of incorporation of the Outer Country body corporate
  • A resolution passed by the global Company
  • A recommendation declared by the promotional Company
  • The interest of the directors in from other entities
  • Nominee’s assent
  • Identity proof and residential address of the subscribers and the nominees
  • Identity proof and residential address of Applicant 1,2 and 3
  • The Declaration/Resolution of the unregistered companies
  • Declaration in Form 'INC-14' and Form 'INC-15'

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.

Recent Amended Regulation for Companies under Form SPICe Plus

All the companies mandatorily will have to file sanctioned returns whenever they exceed the applicable threshold limits under the form SPICe Plus (SPICe+) latest association standards which have also got their EPFO/ESI numbers.

Features of SPICe Plus Form Released by MCA

Recently the Government has published the comprehensive features of the SPICe Plus form (SPICe+) to clear the value of the construction as well as make a lead for a piece of good information. SPICe Plus form (MCA Form SPICe+) is said to dedicate ten services via three central govt ministries and departments which are Ministry of Labour & Department, Revenue in the Ministry of Finance and Ministry of Corporate Affairs. The new SPICe Plus form is said to save good time and method maintenance of the concerned people and has been incorporated for all the new companies from February 23. The other forms that need to be filed along with SPICe+ are AGILE-PRO, SPICe+AoA and SPICe+MoA.

Step By Step Procedure for New Private Limited Company-Incorporation under SPICe+

  • Click ‘SPICe+’ placed under ‘MCA Services’.
  • After that Choose ‘New Application;
  • You can prefer ‘Existing Application’, fill in the application number with the proposed or approved name. Click ‘Type of Company’
  • Click ‘Class of Company’, and the ‘Category of Company’'
  • Click ‘Sub-Category of Company’
  • Next, you have to specify the ‘Main division of industrial activity of the Company’
  • Next, you have to mention the ‘Main division of industrial activity of the Company’
  • You also need to provide details of the ‘proposed or approved name’. Click the ‘Auto-check’ in accordance with the rules administering the name. Submit the ‘Part A’ for reservation of name or proceed with the incorporation.
  • Part B has different sections for ‘check form’ for each section.
  • The details required for registration

    1. Location of the registered office of the company

    2. Advised directors and subscribers

    3. Resources of the company

    4. Other learning to apply for tax registrations such as PAN and TAN

  • Conduct a ‘pre-scrutiny’ check. A confirmation is presented upon successful submission of the form.
  • Download the PDF of Part B proposed for affixing the DSC and for filling up any linked forms along with Part B. The forms linked to SPICe+ are AGILE-PRO, SPICe+MoA and SPICe+AoA, URC-1 and INC-9. Part B of SPICe+ and linked forms can then be uploaded on the MCA portal. A Service Request Number is generated for making a payment towards Private Limited Company incorporation. Once the payment is made successfully, the forms would be processed.
  • In a case where the forms need resubmission for any errors being flagged upon processing, the SPICe+ form has to be resubmitted in the same manner.

Manual to Web-based SPICe + Filing Form Following MCA

SPICe Plus serves many requirements like name reservation, incorporation, DIN allotment, mandatory issue of PAN, TAN, EPFO, ESIC, Profession Tax (Maharashtra) and Opening of Bank Account and acquire the GSTIN via SPICe + form.

Part A:

Name Reservation (New Companies only)

Part B:

  • Company Incorporation
  • Application for DIN
  • PAN Application
  • TAN Application
  • GSTIN Application
  • EPFO Registration
  • ESIC Registration
  • Opening of Bank Account for the Company
  • Profession Tax Registration (only for Maharashtra)

How We Can Help You?

we can help you with Private Limited Company Registration

Frequently Asked Questions

While SPICe is an eform, SPICe+ is an integrated Web form offering 10 services by 3 Central Govt Ministries & Departments.

Application Number refers to a system generated number given to an application for Name reservation/Incorporation which is yet to be submitted/uploaded by the user.

Yes. However, a fee of INR 1000 becomes payable if applied separately.

Presently ICICI bank has been integrated with SPICe+ for opening a Bank account.

A Pvt. Ltd. company would need two or more members who shall act for as directors of the said company.

Once a Company is incorporated, it will be active and in existence as long as the annual compliances are met regularly.

Under “RUN”, the applicant can make application by providing 2 different names with its significance.

The proprietorship must be closed within three months of incorporating of the Private Limited Company.

The assets of proprietorship can be converted into capital for the Private Limited Company, via the making of resolutions and further contracts/agreements. Any debt owing to any creditors (including fines/penalties) will have to be settled before the transfer of such assets.

All bank accounts used for the sole-proprietorship need to be closed, and a new bank account under the Private Limited Company need to be opened. Naturally, all cheques and bank transfers need to be made in favor of the Private Limited Company henceforth.

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