Convert a Sole Proprietorship to Private Limited Company

A Private Limited Company is the most popular type of corporate entity in India. For converting a sole partnership to a Private Limited Company (PLC), you need to submit an agreement between the sole proprietor and the PLC, declaring the transfer of all the assets to the latter.

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How To Convert A Sole Proprietorship To Private Limited Company?

When the business and revenues scale up, there is a need to segregate the tax filings and bank accounts of a sole proprietor with that of his business. Here, is how we help you convert a Sole Proprietorship to Private Limited Company –

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We help you avail (DSC) Digital Signature Certificate and (DPIN) Designated Partner Identification Number for all the sole proprietor and new director

Step 1

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We file your application along with the required documents.

Step 2

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We help you with the post-conversion formalities and compliances.

Step 3

Overview

In India, many entrepreneurs initially start their business as a sole proprietorship because of its low compliance requirements. After certain years, the business will boom and the revenues involved will become more.

Now, in order to limit the liability and to detach the bank accounts and tax filing of an individual, a sole proprietorship firm will be converted to a private limited company.

By converting a sole proprietorship firm to a private limited company, which becomes a separate legal entity thereby reducing the risk of liability and the personal assets will remain untouched except in case of fraud.

The private limited company will be governed under the companies act, 2013, and the shares are held privately not offered to the public. Similarly, the structure of taxation will be unique under income tax act, 1961, and different from the sole proprietorship, which considers the income as individual income.

How To Convert Your Sole Proprietorship to a Private Limited Company?

  • Any sole proprietorship firm can be converted into a private limited company by executing a legally enforceable agreement between the above two.
  • To do conversion between the sole proprietorship and private limited company, one has to incorporate a new private limited company registration. After the incorporation of the company, which acquires the old sole proprietorship assets and liabilities.
  • Converting your sole proprietorship into a private limited company offers several benefits such as restricted liability and a better opportunity to secure a bank loan.
  • Sole Proprietorship to Pvt. Ltd. Company

    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 Registering a Company in India

    As per the rules and regulations of Company Act, 2013, in order to incorporate any company to be registered in India, the below conditions have to be met.

    Two Directors

  • A private limited company must have at least two directors and at most, there can be 15. Of the directors in the business, at least one must be a resident of India.
  • Unique Name

  • The name of your business must be unique. The suggested name should not match with any existing companies or trademarks in India.
  • Minimum Capital Contribution

  • There is no minimum capital amount for a company. A company should have an authorized capital of at least Rs. 1 lakh.
  • Registered Office

  • The registered office of a company does not have to be a commercial space. Even a rented home can be the registered office, as long as an NoC is obtained from the landlord.
  • Memorandum Of Association( MOA)

  • In the objective clause of Memorandum Of Association (MOA), there should be a phrase present “ the takeover or acquisition of a sole proprietorship concern”.
  • Annual returns

  • The private limited company should file an annual financial accounts statement and annual returns with the registrar of the company every year.
  • How to Register a Company Online? - A detailed registration process?

    Company Registration in India will boost the progress of startups and provide an additional edge over those who have not registered. The Ministry of Corporate Affairs governs the company registration process with rules and regulations framed in accordance with the law.

    Conditions to be followed prior converting a sole proprietorship to private limited company

  • After incorporating a new private limited company, all the assets and liabilities of the old sole proprietorship will be completely transferred to the company.
  • Even after the conversion takes place, the old sole proprietorship will hold 50% of shares in a new private limited company. i.e 50% of the voting rights will be held by a sole proprietorship.
  • The old sole proprietor will hold shares for a minimum period of 5 years from the date of incorporation of a new private limited company.
  • Similarly, there will not be any monetary consideration between a sole proprietorship and private limited company as it is a mere conversion, not sale.
  • Step by step procedure for registration

  • Step 1: Application for DSC (Digital Signature Certificate).
  • Step 2: Apply for the DIN (Director Identification Number)
  • Step 3: Application for the name availability.
  • Step 4: Filing of the EMOA and EAOA to register a private limited company
  • Step 5: Apply for the PAN and TAN of the company
  • Step 6: Issued certificate of incorporation by RoC with PAN and TAN
  • Step 7: Opening a current bank account on the company name
  • How can we help in Registering your Company in India?

    The Private Limited Company Registration process is completely online, so you don't even have to leave your home to get your entity registered. At Vakilsearch, we complete the Company Registration online within 14 days.

    Vakilsearch Company Registration package includes:

  • DIN and DSC for two Directors
  • Drafting of MoA & AoA
  • Registration fees and stamp duty
  • Company Incorporation Certificate
  • Company PAN and TAN
  • Zero Balance Current Account - Powered by DBS Bank *
  • Documents required for Online Registration of the 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 directors and the shareholders of the company to be incorporated. Listed below are the documents that are accepted by MCA 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])
  • For the foreign nationals, an apostilled or notarized copy of the passport has to be submitted mandatorily. All documents submitted should be valid. The residence proof documents like the bank statement or the electricity bill must be less than 2 months old.

    Registered Office Proof

    For online company registration in India, the company must have a registered office in India. To prove admittance to the registered office, a recent copy of an electricity bill or the property tax receipt or water bill must be submitted. Along with the rental agreement, utility bill or the sale deed and a letter from the landlord with her/his consent to use the office as a registered office of the company should be submitted.

  • Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill
  • Scanned copy of Notarized rental agreement in English
  • Scanned copy of No-objection certificate from the property owner
  • Scanned copy of sale deed/property deed in English (in case of owned property)
  • E-Form spice 32

    It is an incorporation e-form provided at the final stage of in corporation of a company. Here, all the mandatory details should be filled in this form and submitted along with the required documents.

    FAQs on Convert a Sole Proprietorship to Private Limited Company

    Can any individual register/ start a private limited company?

    YES, any individual can start a company who is of Indian origin/Non Resident Indian( NRI)/ Overseas Citizen of India(OCI)/ Person of Indian Origin(PIO). Even any foreign nationals can also start a company in India with the mandatory documents. But there should be a minimum of 2 directors and a maximum of upto 200 directors.

    How long will it take to incorporate a company?

    Usually, after submitting all the relevant documents to the Register of Companies (ROC), it will take around 20-25 days to get incorporated. If there is any imperfection in the submitted documents then the processing time would be a bit longer.

    Can any foreign national be a director of the company?

    Yes, After acquiring the Director Identification Number(DIN) from the government of India, any foreign national can become/ act as director of the company.

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