Conversion of Proprietorship to Private Limited Company

Conversion of Proprietorship to Private Limited Company

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Conversion of Proprietorship to Private Limited Company - Process, Procedure, Document Required, Fees, Eligibility, Duration

Initially, many entrepreneurs start their businesses as sole proprietorships. When a business expands, it becomes necessary to transform it into a Private Limited Company to minimize liability and separate an individual's bank accounts and tax filings. A Private Limited Company has several advantages over a sole proprietorship, including limited liability, the potential to attract equity capital, and the ability to continue operations among others.

A proprietorship, often known as a sole proprietorship, is a type of business owned and operated by one person, with no legal distinction between the owner and the business entity. The proprietor (the owner of a business, or a holder of property) is entitled to all earnings and is personally liable for all debts, losses, and liabilities. On the profits earned from the business, the owner pays personal income tax.

A Private Limited Company, on the other hand, is a privately held firm for small businesses. A member's liability in a Private Limited Company is limited to the number of shares they own. A corporation must pay corporation tax on whatever profits it makes and then distribute the remainder to shareholders. A Private Limited Company's shares cannot be traded publicly. Any type of business, such as a photographer, lawyer, dentist, accountant, and so on, can register a Private Limited Company. Shareholders are the proprietors of a Private Limited Company.

 

 

Advantages of conversion of proprietorship to Private Limited Company

 

A Private Limited Company has several advantages over a sole proprietorship. They are:

  • A sole proprietor is subject to unlimited liability for any losses incurred. However, a Private Limited Company's regulation distinguishes between the owner and the entity, limiting the owner's liability.
  • A sole owner is taxed at their income tax rate, however, a private limited business is not. A company must pay corporation tax on whatever profits it makes.
  • A sole proprietorship is limited to the owner's cash, but a Private Limited Company has fundraising alternatives and can raise larger amounts of capital for expansion.
  • Because a sole proprietorship is based on a single individual, its survival is limited to the proprietor's ability to function. The Private Limited Company, on the other hand, is a separate legal entity that is not bound by the presence of a single owner.

 

 

Prerequisites of conversion to Private Limited Company

 

To convert a sole proprietorship into a Private Limited Company, the following prerequisites must be fulfilled:

  • To convert a sole proprietorship into a Private Limited Company, the Private Limited Company has to be created first. Then the sole proprietorship should be taken over using a Memorandum of Association (MoA).
  • The sole proprietorship firm's assets and liabilities must be transferred to the Private Limited Company.
  • The Private Limited Company must have at least two directors. The sole proprietor should be a member of the company's directorial board.
  • A minimum of two shareholders is required for the Private Limited Company.
  • A minimum authorized capital of Rs one lakh is required for the Private Limited Company.

Conversion of Proprietorship to Private Limited Company - Get Expert Advice

Conversion of Proprietorship to Private Limited Company - Get Expert Advice

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Conversion of Proprietorship to Private Limited Company Frequently Asked Questions

Anyone who wants to convert a sole proprietorship to a Private Limited Company can do so by following the below-mentioned procedures: • Get the sole proprietor's Digital Signature Certificate and the Director Identification Number for the new director. • Get approval to name the firm, which must be applied for in Form-1. • Apply for company establishment with the Ministry of Corporate Affairs (MCA). • Complete the legalities for the slump sale. • Change the details of the bank account to reflect the conversion. • Submit the necessary documents and forms. • The MCA will validate the required compliance standards once all procedures have been completed. • If the administering authority approves, the entity will be issued a Certificate of Incorporation, resulting in the foundation of a new Private Limited Company. Credence Corporate Solutions can help you transform a sole proprietorship into a Private Limited Company. Please contact our office today; we would be happy to assist you!
To convert a sole proprietorship into a Private Limited Company, the following documents must be submitted: • Aadhar Card • PAN Card • Photographs of Directors in passport size • Ownership of commercial property proof • Electricity bill • Bank statement

Ask Questions about Conversion of Proprietorship to Private Limited Company

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Get Free Consultation on Conversion of Proprietorship to Private Limited Company

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