Converting A Sole Proprietorship To Private Limited Company
In India, the most common type of business entity is a private limited company. You must file an agreement between the sole owner and the PLC announcing the transfer of all assets to the latter in order to Converting A Sole Proprietorship To Private Limited Company.
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OVERVIEW on Converting a sole proprietorship to private limited company
Because of India’s low compliance standards, many entrepreneurs start their businesses as sole proprietorships. After a few years, the firm will take off, and the revenues will increase.
A sole proprietorship firm will now be changed to a private limited company in order to minimize liability and separate the bank accounts and tax filing of an individual. Converting a sole proprietorship to a private limited company, which establishes a separate legal entity and reduces liability, protects personal assets unless in the event of fraud.
The private limited company will be controlled by the Companies Act of 2013, and the shares will be held privately rather than being made available to the general public. Similarly, under the Income Tax Act of 1961, the taxation structure will be distinctive and distinct from a sole proprietorship, which treats income as individual income.
Benefits of Registering a private company in India?
Registering a company offers many benefits. A registered company makes it genuine and increases the authenticity of your business.
- Shields from personal liability and protects from other risks and losses.
- Attracts more customers
- Procures bank credits and good investment from reliable investors with ease.
- Offers liability protection to protect your company’s assets
- Greater capital contribution and greater stability
- Increases the potential to grow big and expand
- You will also get Zero Balance Current Account – Powered by DBS Bank *
- Shareholders have a right to appoint the directors to act on behalf of him.
- Unlike a sole proprietorship, even after the death of directors/ shareholders company will exist without any discrepancies.
- The shareholders and the directors will get complete immunity from being sued by the third party except personal issues.
- It attracts lower tax rates and subsidies under the Income Tax Act, 1961.
- The profit of the private limited company is subjected to the tax rate of 30% + surcharge & cesses as applicable.
Checklist for Converting a sole proprietorship to private limited company
According to the rules and regulations of the Company Act of 2013, the following conditions must be completed in order for a company to be registered in India.
- There must be at least two directors in a private limited corporation, with a maximum of 15. At least one of the company’s directors must be an Indian citizen.
- Your company’s name must be distinct. Any existing companies or trademarks in India should not be confused with the suggested name.
Minimum Capital Contribution
- There is no requirement for a firm to have a certain amount of capital. A company’s authorized capital should be at least Rs. 1 lakh.
- A company’s registered office does not have to be a commercial space. Even a rented property might serve as the registered office if the landlord provides an NoC.
Memorandum Of Association (MOA)
- There should be a phrase present in the objects clause of Memorandum Of Association (MOA) “the takeover or acquisition of a sole proprietorship concern”.
- Every year, the private limited company must file an annual financial accounting statement as well as yearly reports with the registrar.
DOCUMENTS REQUIRED FOR Converting A Sole Proprietorship To Private Limited Company
In India, Private Limited company registration cannot be done without proper identity proof and address proof. Identity and address proof will be needed for all the company’s directors and shareholders to be incorporated. Listed below are the documents that MCA accepts for the online company registration process acceptable.
Identity And Address Proof
- – Scanned copy of PAN Card or Passport (Foreign Nationals & NRIs)
- – Scanned copy of Voter’s ID/Passport/Driver’s License
- – Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill.
- – Scanned passport-sized photograph specimen signature (blank document with signature [directors only])
An apostilled or notarized copy of the passport must be presented for international nationals. All of the documents you send should be legal. The evidence of residence documentation, such as a bank statement or a utility bill, must be less than two months old.
Registered Office Proof
For online company registration in India, a registered office in India is necessary. A recent copy of an electricity bill, property tax receipt, or water bill must be supplied to confirm entrance to the registered office. Along with the rental agreement, utility bill or sale deed, and a letter from the landlord granting permission to use the office as the company’s registered office, the rental agreement, utility bill or sale deed, and a letter from the landlord granting permission to use the office as the company’s registered office should be submitted.
- a scanned copy of an English sale deed/property deed (in case of owned property)
- Notarized rental agreement in English, scanned copy
- A scanned copy of your most recent bank statement, phone or mobile bill, or energy or gas bill
- A scanned copy of the property owner’s No-Objection Certificate
E-Form Spice 32
It’s a company incorporation e-form that’s available at the very end of the process. All mandatory information should be filled in this form and submitted with the appropriate documents.
procedure for CONVERTING A SOLE PROPRIETORSHIP TO PRIVATE LIMITED COMPANY
For all sole owners and new directors, we can assist you obtain a (DSC) Digital Signature Certificate and a (DPIN) Designated Partner Identification Number.
Your application and all relevant documents are filed with us.
We assist you with the formalities and compliances that follow the conversion.
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FAQs on Converting a Sole Proprietorship to Private Limited Company
If you are planning to close the LLP or Limited Liability Partnership, then you have to follow the process mentioned below:
- Closure of business operations- When you are planning to close the LLP, then you must first close the current business operations.
- Close the bank account- Once you have closed business operations
- Preparing the closing statement of accounts- The next step is to close the statement of accounts.
- Application to ROC-LLP Form 24- At this stage, the partners of LLP are required to file an application to the registrar along with an affidavit and fees along with the consent of all the partners.
In case you are unsure of the steps and process of closure of LLP, then you can connect with legaltoast for assistance. We have a team of qualified professionals who will help you with the same.