Often individuals when they do not have enough resources start a business as sole proprietors. Any business that is run by a single individual is a proprietorship that grows over time. However, as the business grows, the need for more segregation and opportunities arises. So, converting a sole proprietorship to a private limited company is considered. In order to gain the benefits of a private limited company, the official conversion is considered. This guide will help you learn about conditions and approach to ensure a smooth transition.
Conditions for Conversion
To convert a proprietorship into a PVT. Ltd, there are a few conditions that you need to understand and follow. Here are a few conditions to fulfill for converting into a private limited:
- Sale agreement: The company must execute a sale agreement with the proprietor to convert into a private limited. However, there should not be any monetary consideration as it’s only conversion not the sale of the company.
- Memorandum of Association (MOA): As per the official MOA, one of the goals of the company should be acquiring shares of the proprietor.
- Transfer of Assets and Liabilities: The assets and liabilities under the name of the old sole proprietor are transferred to the business or company. The ownership is transferred to the company name.
- Directorial Board and Shareholding: Sole proprietor will be the major shareholder in the company with 50% voting rights.
- Minimum Share Capital: The sole proprietor converting a business into a private limited company must have at least a 50% stake in the company. In addition, the proprietor must hold these shares for at least 5 years from the date transferring into Pvt. Ltd.
Steps in Converting a Sole Proprietorship to a Private Limited Company
To convert the trademark or business of a sole proprietor into a private limited company, you have to follow a few steps such as:
- Slump Sale formalities: Business owners need to follow the basic slump sale formalities at the first stage of conversion.
- Apply for DIN and DSC: The owner or proprietor converting business should apply for DIN – Director Identification Number and DSC- Digital Signature Certificate of the company.
- Name availability: Check and verify the company name as per the rules and regulations of the Ministry of corporate affairs.
- Filing of the EMOA and EAOA: To register the private limited company apply for EMOA- e-Memorandum of Association and EAOA- e-Articles of Association.
- Apply for the PAN and TAN of the company: Next step is to apply for PAN- Permanent Account Number and TAN- Tax Deduction and Collection Account Number for the company.
- Issued certificate of incorporation by RoC with PAN and TAN: After confirmation of procedure, registration of companies and MCA will issue a certificate of incorporation to the company.
- Opening a current bank account under the company name: The last step for a proprietor is to open an official bank account under the company name.
Conclusion
To grow your business, taking advantage of the benefits of Pvt. Ltd., conversion is required. The above-mentioned guide explores conditions and steps to follow for converting a proprietorship to a private limited company.
