CONVERSION OF SOLE PROPRIETORSHIP TO PRIVATE LIMITED COMPANY

A Sole Proprietorship is a business entity is wholly owned and controlled by an individual, it is a good form of business for individuals who want to start small but as business grows it necessitate converting it into some greater form for greater advantages. Many opt for choice of Private Limited Company as it give it a status of separate Legal entity also a private limited company offers significant advantages over the sole proprietorship.

MINIMUM REQUIREMENTS FOR CONVERSION

a. Minimum 2 Shareholders for Private Limited Company Registration
b. Minimum 2 Directors
c. Minimum Rs.1 Lakh Share Capital 

d. DIN for all Directors

The proprietor should ensure compliance with the following requirements before beginning the conversion of proprietorship into company:

1. An agreement must be entered into between the sole proprietor and the private limited company for conversion. Know more about slump sale agreement.
2. The Memorandum of Association (MOA) of the Private Limited Company must include an object that states – “The takeover of a sole proprietorship concern”.
3. All the assets and liabilities of the sole proprietorship firm must be transferred to the private limited company.
4. The sole proprietor should be a part of the company’s directorial board with a voting power which constitutes to at-least 50% of that of the company. It may be noted that a private limited company must have a minimum of two directors.
5. The incorporation rules of a private limited company mandate the minimum share capital requirement to be Rs 1,00,000.

PROCEDURE FOR CONVERSION

A sole proprietorship can be converted if the above-mentioned conditions are met. Talking about the conversion process, the following measures must be initiated by an entrepreneur to get the proprietorship firm converted into a private company:

1. Obtaining the Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the sole proprietor and new director.
2. Acquiring permission for naming the company, the application for which must be made in Form-1. Click here to check company name availability.
3. Apply to MCA for incorporation of company.
4. Completing the slump sale formalities.
5. Modifying details of the bank account in accordance with the conversion.
6. Submitting the relevant documents and forms (covered separately).

DOCUMENTS REQUIRED

Conversion of an entity prompts the need of the following documents:

1. Basic ID and Address proof of the directors.
2. Letter of Authority/POA.
3. Proof of registered office address, which could be a copy of the utility bill, rent agreement, sale deed and the likes of it.

With respect to forms, the concerned person needs to furnish form 1, Form 18 and form 32. The documents and forms mentioned here should be uploaded on the website of the Ministry of Corporate Affairs (MCA).