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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 to private limited company conversion will be done.
By conversion of proprietorship into private limited company under companies act 2013, it 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 and 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.
Registering a company offers many benefits. A registered company makes it genuine and increases the authenticity of your business.
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.
The procedure to perform takeover of sole proprietorship by private limited company in India is as follows,
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
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 HSRAdvisory, we complete the Company Registration online within 14 days.
HSRAdvisory Company Registration package includes:
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.
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.
Answered by our experts
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.
No, the ownership of the sole proprietorship is non-transferable
The Income Tax Return Filing Compliance Requirement for Sole proprietorship ownership is applicable only if the turnover is more than ₹2.5 lakhs.
A new bank account under the name of Private Limited Company needs to be opened and should close the one used for the sole proprietorship. Hence, all cheques and bank transfers must be made under the Private Limited Company.