How can I change my proprietorship company to Pvt Ltd?

Legal Services
Posted by Corpseed Group
4
Jul 29, 2022
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Overview

A solitary proprietorship is unable to reap the full rewards of expansion. The proprietorship will therefore need to be changed into a private limited company. All of a company's advantages, such as greater capital, limited liability, and others, may follow the conversion. Although converting a proprietorship into a private limited company has numerous advantages, it also results in a loss of independence and distribution of authority. Therefore, the choice must be made after carefully weighing all the relevant elements and determining whether it actually results in the expected privileges. The rigors of the business world and the drawbacks of solo ownership may limit a company's growth and development as it evolves. This is the main reason why many company owners convert their sole proprietorship to private limited company.  In comparison to alternative ownership arrangements, a private limited company has a number of advantages, including limited liability, the capacity to draw in fresh funds, perpetual succession, and others.

Documents Required for Conversion of a sole proprietorship into a private limited company?

The following documents are required for the conversion of a sole proprietorship into a private limited company:

  • A copy of each director's PAN card (identity proof)
  • Aadhaar card or voter ID copy (address proof)
  • Directors' passport-sized photographs
  • Evidence of business ownership (if owned)
  • Rental contract (if rented)
  • A landlord's No Objection Certificate (NOC) (if rented)
  • Water or electricity bills

What do you need to convert a sole proprietorship into a private limited company?

To convert a proprietorship into a private limited company, the following requirements must be met:

  • Between the sole proprietor and the business, a takeover or sale agreement must be signed.
  • The sole proprietorship's obligations and assets must be transferred to the business.
  • The Private Limited Company's Memorandum of Association (MOA) should state that its goal is "The takeover of a sole ownership firm."
  • The proprietor's shareholding should represent at least 50% of the voting power and should remain the same for at least 5 years.
  • Other than the amount of shares held, the proprietor shall not obtain any further benefits, either directly or indirectly.
  • A private limited company shall have an authorized share capital of Rs. 1, 00,000.

Benefits of Conversion of Sole Proprietorship into Private Company

A private limited company has a number of advantages, including:

  • The sole proprietorship is not formally recognized, but private companies are registered in accordance with the Companies Act of 2013.
  • The private limited company is a separate legal entity from the sole proprietorship, which has no separate legal status.
  • Shares in a sole proprietorship cannot be transferred; but, shares in a private limited company can be easily transferred.
  • A private company, as opposed to a sole proprietor, is able to raise money or capital for growth.
  • In a Private Limited Company, liability for losses is constrained by shares or a warranty, whereas in a sole proprietorship, the owner is solely accountable for any losses.
  • Unlike a sole owner, who is not a corporate entity, a private company can benefit from tax laws that only apply to profits and not to income.
  • While a sole proprietorship is dependent on the life of the sole proprietor, a private limited company enjoys eternal succession.
  • A private limited company can hire highly skilled workers with ease, whereas a sole proprietorship finds it difficult to do so.
  • While a sole proprietorship has a limitless liability, a private limited company's shares serve as its only means of protection.
  • Unlike a convert proprietorship to private limited company is registered, which increases the legitimacy of the company and makes it appear more legitimate.
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