Convert Sole Proprietorship To Private Limited Company
A proprietorship company or famously known as sole proprietorship company is a type of business that is owned by a single person. Here, there is no legal distinction between the owner of the business and the business. The owner is in direct control of all aspects related to the business, is accountable for its functioning and completely owns its profits or losses.
A private limited company or famously known as LTD is a privately held company. This implies that the business limits owner liability to its shares and limits number of shareholders to 50. It also restricts shareholders from trading shares publicly.
Advantages of Private Limited Company
- The liability of shareholders is limited to their shares. Financial risks are a part of business but to be able to minimize them and sustain the business progress is imperative. In an LTD, if due to any reason the company were to be closed the shareholders would not risk losing their personal assets.
- Risk of takeovers is minimized when two shareholders trade shares as the selling and buying of shares is possible only when both parties have given their consent.
- Private limited companies are incorporated; hence it continues to exist even if the owner dies.
- The capital or options of raising investment in business is not restricted to one person, which is the case in sole proprietorship.
- Private limited companies pay corporate tax on their profits. Dividends that the shareholders receive are not taxed. Taxes are determined as per their personal income tax rate.
- Sole proprietorship has difficulty in reaching large-scale business standards whereas it is not the case in LTD. Private limited companies can attract high-caliber employees that offer great help in the growth of the company.
- The burden of the operations and running of the business falls on one person in sole proprietorship. Whereas, in LTD, the business is much easier to manage.
Documents required converting Sole Proprietorship to Private Limited Company (Heading)
- A written agreement between the sole proprietorship and private limited company must be formed and sent to Registrar of Companies
- Digital Signature Certificate (DSC) of all directors
- Director Identification Number (DIN) of all directors
- Altered Memorandum and Articles of Association (MOA/AOA)
- Form 32 – This form is to be filed whenever there is a change or update in board of directors
- Form 18 – This contains the notice of situation of the registered office of the proposed company
- Form 1 – This to be filed to validate name availability of the newly formed company
- Letter of authority or Power of Attorney (POA)
The proprietorship must be closed within three months of incorporating of the Private Limited Company.
The assets of proprietorship can be converted into capital for the Private Limited Company, via the making of resolutions and further contracts/agreements. Any debt owing to any creditors (including fines/penalties) will have to be settled before the transfer of such assets.
All banks accounts used for the sole-proprietorship need to be closed, and a new bank account under the Private Limited Company need to be opened. Naturally, all cheques and bank transfers need to be made in favour of the Private Limited Company henceforth.
No. All licenses and permits must be re-applied under the Private Limited Company following necessary procedures to concerned authorities.