Convert proprietorship into Private Limited CompanyHemlata Khandelwal / 2021-10-25 11:56:53
When the business and revenue increases, there is a need to separate the tax filing and bank accounts of the sole proprietor with his business. In this article we will discuss about detail information for how to convert a sole proprietorship into a private limited company.
How to covert sole proprietorship into private limited company?
Many businessmen in India initially switch as sole proprietorships due to low compliance requirements when they start their business. It is expected that after a few years there will be a boom in the business and the revenue involved will be more.
Now limit the liability and separate the bank accounts and tax filing of an individual thus converting a sole proprietorship firm into a private limited company.
A sole proprietorship firm is converted into a private limited company which becomes a separate legal entity thereby reducing the risk of liability and personal property being left unaffected in case of fraud.
Private Limited Company is regulated under the Companies Act 2013 and the shares are not offered privately to the public Similarly the taxation structure will be unique under the Income Tax Act 1961 and different from Sole Proprietorship which treats the income as personal income.
To convert a sole proprietorship into a private limited company
Any sole proprietorship firm can be converted into a private limited company by executing a legally enforceable agreement between the above two.
When transitioning between a sole proprietorship and a private limited company, a new private limited company registration has to be incorporated. The old sole proprietorship which acquires assets and liabilities after the incorporation of the company.
Converting your sole proprietorship into a private limited company comes with several benefits such as limited liability and better opportunity to secure a bank loan.
What are the Benefits of registering a private company in India?
Benefits of registering a private limited company:
Registering a company brings many benefits. A registered company makes it genuine and enhances the authenticity of your business.
- Protects against personal liability and other dangers and damages.
- Attracts more customers
- Easily gets bank credit and good investments from reliable investors.
- Provides liability protection to protect your company's assets
- Greater capital contribution and greater stability
- Enhances ability to grow and expand
- You will also get Zero Balance Current Account which is operated by DBS Bank
- Director of the company could be appointed by the Shareholders. It’s about theright of shareholders. They canact on his behalf.
- Unlike a sole proprietorship, the company will continue without any discrepancy after the death of the directors, shareholders.
- Talk to shareholders and directors except on personal issues
- Filing a lawsuit by a third party will give full immunity.
- It attracts lower tax rates and subsidies under the Income Tax Act 1961.
- Profit of Private Limited Company is subject to tax rate of 30% + Surcharge & Cess as applicable.
What are the Conditions to be followed before converting a Proprietorship company into Private Limited Company?
Conditions to be followed before converting Proprietoship company into Private Limited Company:
- After the incorporation of a new private limited company it is required for the proprietorship company to transfer their assets and liabilities completely.
- After changes 50% shares of the new private limited company will be hold by the old proprietorship company and also they have 50% rights of voting.
- Shares of the new incorporated company shall hold from the date of incorporation by the proprietorship company for a minimum 5 years
- Similarly, there will be no monetary consideration between a sole proprietorship and a private limited company.Because it's just a conversion, not a sale.
What are the documents required for private limited company registration?
Documents required for online company registration-
Private limited company registration in India cannot be obtained without proper identity proof and address proof. Proof of identity and address will be required to include all the directors and shareholders of the company. Listed below are the documents which are accepted by MCA for online company registration process.
- Identity and Address Proof:
- Scanned copy of voter ID, passport, driver's license
- Scanned passport size photograph Sample Signature (Blank document with signature [Director only)]
- Scanned copy of PAN Card or Passport (Foreign Citizen and Overseas Indian)
- Scanned copy of latest bank statement, telephone or mobile bill, electricity or gas bill.
- For foreign nationals an apostil led or notarized copy of the passport must be submitted compulsorily. All documents submitted must be valid. The documents of residential proof must be less then 2 months.
- Registered office proof
To register a company they must have a registered office in India. The entry has to be certified at the registered office in which a recent copy of electricity bill or property tax receipt or water bill has to be submitted. And must beattached with the utility bill, rental agreement, or sale deed and they must use the office as the company’s registered office for which a letter from the landlord with his consent must be submitted.
- A copy of gas’s & electricity bill, telephone bill and latest bank account statement that must not be less then 2 months.
- A notarized Scanned copy of rental agreement in English
- Objection Certificate (NOC) copy from the property owner
- Deed of sale in English,
- Copy of the property deed (in case of owned property)
- E-Farm Masala 32:
This is an incorporation e-form which is provided at the last stage of incorporation of a company here all the mandatory details should be filled in this form. And have to submit it along with the required documents.
What are the process to register a proprietorship company into a private limited company?
Step by step process for private limited company registration:
Step 1- Applicant or proprietor of the company must need to file an Application for DSC (Digital Signature Certificate).
Step 2 –The applicant must need to Apply for DIN (Director Identification Number)
Step 3 –Also fill out an Application for availability of name.
Step 4 –The applicatneeds to FileAOA and MOA (Memorandum of Association) to Register a Private Limited Company
Step 5 –on other hand they needs to file an Application forpermanent account number that is called PAN and TAN of the company.
Step 6 –RoC issued the Certificate of Incorporation such as a certificate of Company registration in India with PAN and TAN.