Company IncorporationSole Proprietorship

How to Switch Sole Proprietorship to a Private Limited Company

In this article, you will learn how to switch sole proprietorship to a private limited company.

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A sole proprietorship is a legal entity that a single person can form to run a business. However, any lawsuit involving the business will make the owner and their assets liable. The owners of a private limited company, on the other hand, are protected from liability by the company’s legal status. This article will discuss the benefits of converting from a sole proprietorship to a private limited company.

What Is a Sole Proprietorship?

A sole proprietorship is when one person acts as both the owner and the employee. This means that there is no distinction between taxes, liability, and ownership. The business is just one person.

Why You Should Convert Your Sole Proprietorship to a Private Limited Company

When you start a small business, it’s typically done by a sole proprietorship. This is great when you first get started, but a proprietorship may not be the best option as your business grows. You end up with all of the liability yourself, making it difficult to find investors and loans. A private limited company will help you avoid this issue because the liability is spread out among the shareholders.

Process of Conversion:

  • Apply for DSC
  • Check company name availability
  • Send an application for Reserve Unique Name (RUN)
  • Share copies of MoA, AoA
  • Prepare and Pay stamp duty
  • Notarise the necessary company documents
  • File for company registration
  • Submit an application for DIN
  • Apply for PAN and TAN of your organization

Benefits of Conversion

One of the benefits of converting a sole proprietorship to a private limited company is that it will be easier to attract and keep investors. Investors are more likely to invest in a private limited company because they will have shares in the company and protection if anything goes wrong with the company. There are also tax benefits associated with owning shares in a private limited company.

Private limited companies are corporate entities that allow various venture capitalists and angel investors to invest more funds. This can be done through the unsecured bond or stockholders.

CONVERT TO PRIVATE LIMITED COMPANY

Private Limited Companies support FDIs whereas other companies need various licenses. The value of a private limited company is higher when it is registered than if it is not. The registration process for a private limited company can be completed from the official website of the Ministry of Corporate Affairs. The increased reputation among suppliers, vendors, and investors brings increased revenue to the private limited company.

It is easy to transfer shares to members of the company and issue new shares. As a separate entity, a private limited company is able to buy properties and assets on its own behalf. This includes the ability to litigate or be litigated.

Conclusion

In conclusion, the sole proprietorship structure works great for a small business. However, as the business grows and becomes more complex, it may be time to convert to a private limited company.

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