How to Convert Sole Proprietorship to Pvt. Ltd. Company?

As the organization starts growing, the requirements also increase. In such a situation, it becomes a bit difficult to have a firm grip over the operations of the firm. In such a situation, the conversion of a sole proprietorship to Pvt. Ltd. Company serves to be a great decision. It helps in reaping a plethora of remarkable benefits.

Want to know how? Here it is……

Does Sole Proprietorship Fetch All Types of Benefits?

If the company is a small one, then there are chances that sole proprietorship may result in coming across a wide range of benefits. In such a situation, the owner is responsible for almost seventy-five percent of the tasks. The proprietor needs to bear the fruit of both profit and loss.

But, as it starts growing with time; observing every activity seems to be a bit challenging. Thus, conversion of the firm to a Pvt. Ltd. Company becomes the best decision. It not only assists in an even distribution of work but also waves in coming up with a plethora of benefits that include the following:

  • Limited amount of liability
  • High capital return
  • Enhanced work quality and many more.

But, in some cases, it results in the power getting diffused followed by losing the firm grip from independence. Hence, by considering all the factors followed by confirming its genuine existence; halting to the best decision will become easy.

What are the Differences that Exist between Proprietorship and Pvt. Ltd. Company?

Some vital differences exist between sole proprietorship and Pvt. Ltd. Company. Before opting for conversion, it will be a great decision to peep into the differences that exist between them. Though the list is a long one, some of the vital ones include the following:

  • In a sole proprietorship, sustainability seems hardly any challenge regardless of the unlimited number of liabilities for any type of loss. The proprietor remains liable to pay for any loss personally that is related to the firm.

Whereas, in the case of a Pvt. Ltd. company, the rules and regulations vary a bit. The owner and company are considered separate legal entities. It results in limiting the liabilities of the owner.

  • The sole proprietors have limited options regarding the raising of funds. As the innovative ideas are limited, the options for income also remain duly limited.

On the other hand, a private limited company comprises the lucrative benefits associated with raising the fund. With a team of efficient marketers, it will become easy to enhance the stream of income to a high extent.

  • Last but not the least, the demise of the proprietor may result in the termination of the overall tenure of the firm. Hence, both the owner and the people working there will have higher chances of losing their jobs.

Whereas, a Pvt. Ltd. company is a bit far from such unnecessary risky situations. As it appoints the legal heir for taking over the affairs associated with the business, people may expect that the business will continue.

These are some vital differences that exist between a sole proprietorship and Pvt. Ltd. Company.

What is needed for Carrying Out with the Conversion?

Are you a proprietor and looking forward to convert your organization to a private limited company? If yes, then there are certain rules that you must follow at any cost for letting the process go on smoothly.

As a proprietor, you must ensure full compliance with some of the vital requirements before going with the conversion. Some of the vital ones include the following:

  • Agreement – There must be an agreement that you must enter into prior conversion. It must be between you and the private limited company.
  • Memorandum of Association – The Memorandum of Associated is inclusive of an object that clearly states taking over of the concern of sole proprietorship.
  • Transferring of assets and liabilities – The transfer of assets and liabilities to a private limited company is another important step to cover.
  • Minimum two directors – There must be a minimum of two directors. The sole proprietor must be a part of the directorial board of the company with particular voting power. The voting power must constitute a minimum of fifty percent of the company.
  • Minimum share capital required – According to the incorporation rules associated with a private limited company, it is mandatory for the capital need. The minimum amount must be ₹1,00,000.

Keeping these points in consideration, it will become easy to carry on with the conversion of a sole proprietorship to a private limited company.

What are the Benefits of Registering a Private Limited Company?

Registering a sole proprietorship company to a private limited company comprises lots and lots of benefits. Some of the highly remarkable ones include the following:

  • Protects the company from additional losses and risks
  • Attracts more customers
  • Offers high-level protection to liability and assets of the company
  • Helps in procuring a good amount of investment and credits from investors
  • Higher stability and capital contribution
  • Helps in increasing the potential of growth and further expanding
  • Both the directors and shareholders will be able to enjoy lucrative immunity from being sued by any third party
  • Attracts low tax rates and subsidies under the Income Tax Act of 1961

After coming across some of the lucrative benefits associated with a private limited company, it is high time to know about the procedure required for converting a proprietorship to a private limited company.

What is the Step-by-step Procedure of Converting Proprietorship to Pvt. Ltd. Company?

After coming across some of the exclusive benefits associated with the conversion of proprietorship to Pvt. Ltd. Company, you must be dreaming of going with the same. Below is a step-by-step procedure associated with the same:

  • The slump sale formalities must be completed by the proprietor
  • The directors must not fail in obtaining the Director Identification Number and Digital Signature Certificate
  • Application regarding the availability of name must be done by the proprietor through Form-1. The MOA and AOA (Articles of Association) of the company must be prepared. They specify the objectives and rules of the company
  • The application must be done to the Ministry of Corporate Affairs by following all required formalities

Once done with the receiving of the Certificate of Incorporation, application of PAN and TAN must be completed anew. Also, the bank details must be modified post the conversion

Some important documents that you must not forget to submit include the following:

  • Copies of PAN card, Aadhar card, or any photo identity proof of the directors
  • Passport size photographs
  • Rental agreement, if the property has been taken on rent
  • Proof of ownership of the business place, if you have owned it
  • Electricity bill or water bill
  • No objection certificate from the respective landlord

Seems confusing? Relax! Visiting will help in solving all your problems in the best possible manner. We have a team of experienced professionals that keep no stone unturned in providing the best service.