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.
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.
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."
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:
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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.
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Frequently Asked Questions
While SPICe is an eform, SPICe+ is an integrated Web form offering 10 services by 3 Central Govt Ministries and 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.
Any individual/organizationincluding foreigner.