As a business grows, the demands of the market and the disadvantages of a proprietorship may force a business owner to initiate the process of transferring ownership into a PVT company.
A Pvt ltd company has significant advantages over other types of business ownership, such as limited liability, the ability to attract fair funding, a consistent presence, and so on. In this article, we’ll look at the requirements and procedures for transforming a Pvt Ltd Company from a sole proprietorship.
Conditions for Transforming a Proprietorship into Pvt Company
- For the transformation to take place, an agreement must be made between the sole owner and the Pvt ltd company
- The Pvt ltd company’s memorandum of association (MoA) should include a line that says – ‘An acquisition of a sole proprietorship’
- In addition, all of the benefits and liabilities of the sole proprietorship must be transferred to the pvt ltd
- The sole owner should be a voting member of the organization’s directorial board. In any case, the directional board is half the size of the organization. It is important to remember that a pvt company must have at least two directors
- Moreover, the integration principles make it mandatory that the minimum share capital of a pvt ltd company be ₹1,00,000.
Procedure for Transforming a proprietorship to a Pvt ltd company
The Companies Act of 2013 and the Income Tax Act of 1961 govern the conversion of a sole proprietorship firm to a private limited company. sole proprietorship transformation can be accomplished by following the processes outlined below:
- The director identification number (DIN) and the digital signature certificate (DSC) must be obtained for all the directors
- Obtaining approval to name the corporation, which must be requested in Form-1
- Prepare the company’s MoA and AoA which outlines the company’s objectives and policies
- Make an application to the MCA for the establishment of the company
- The slump sale formalities must be completed by the proprietor
- Submit all the necessary documents
- You will be issued a certificate of incorporation.
Documents Required for Transformation
- PAN card copy of all directors (identity proof)
- Copy of Aadhaar card/voter ID (address proof)
- Passport-size photographs of directors
- Proof of ownership of a business place (if owned)
- Rental agreement if rented
- No objection certificate (NOC) of the landlord
- Electricity or water bill.
The Following Forms Must Be Submitted to the MCA:
- Form 1 must be filed with the MoA, AoA, and other documents and Form 18 specifies the details of the registered office
- Form 32 contains particulars of the information of the directors.
Forming a Pvt ltd Company: Prerequisites
To change a sole proprietorship into a Pvt ltd, first, incorporate the company, then take over the sole proprietorship via a memorandum of association (MoA) and transfer all assets and liabilities to the Pvt ltd. As a result, before applying for a certificate of incorporation, the following prerequisites must be met.
- Minimum of two directors and DIN for all the directors
- Minimum of two shareholders
- The minimum share capital of ₹1 lakh.
In addition, the sole proprietorship will be required to officially close down. The sole proprietorship’s use of any licenses or tax registrations can then be canceled or submitted to the authorities. As a result, the government should be notified of the closure.
Conclusion
This entire procedure is believed to be dreadful. Transformation involves registering a company as a whole, then providing further documents to finalize the acquisition, and ultimately ending the sole proprietorship. As a result, transforming a sole proprietorship to a Pvt ltd company is regarded as a time-consuming process. Vakilsearch, on the other hand, can make this process much easier and faster for you. Get in touch with our experts now!
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