Home / Sole Proprietorship to Private Limited Company

Updated on 28 Oct 2020  9.00 AM IST | 4 min read

Proprietorship to Private Limited Company

Most of the persons start their business as sole proprietor due to less compliance requirements but due to growth in the business, sole proprietor needs a separate business account for their business transactions. The best way to complete all these requirements is to convert sole proprietorship into a private limited company.

In order to convert a sole proprietor ship firm into a private limited company, business owner needs to incorporate a new fresh private limited company by entering into an agreement. The promoters of the company indulge themselves into an agreement for the main objective of selling the business. Business owner must mention about this takeover as one of the objectives in memorandum of association (MOA).

What Is Included In Our Package?

Eligibility Consultation

Document Preparation

Application Drafting

Government Fees

Minimum Requirements For Converting A Proprietorship Firm Into A Private Limited Company

  • Minimum 2 directors
  • Minimum 2 shareholders for registration of a private limited company.
  • Minimum Rs.1 Lakh share capital.
  • DIN (Director Identification number) for all directors.
  • Business owner should mention “Takeover of sole proprietorship concern” as one of the objectives in Memorandum of association.

Documents Required In Converting Sole Proprietorship Into A Private Limited Company

  1. Latest photograph of all directors & shareholders
  2. PAN card copy of directors & shareholders (Passport in case of foreign nationals)
  3. Address proof of all directors & shareholders (Aadhar card and Voter id/passport/driving license)
  4. Address proof of registered office (electricity bill/telephone bill of the registered office)
  5. Non-objection certificate (NOC) from the owner of the registered office
  6. Rent agreement of the registered office (If office is situated at a rented place)
  7. Income tax return acknowledgement by the sole proprietor

Benefits of Converting Proprietorship Firm Into A Private Limited Company

  • Separate legal entity – Private limited company enjoys the benefit of separate legal entity as its existence is separate from its members. The members of the company have no personal liability towards the creditors for company’s debts.
  • Limited liability – By conversion into a private limited company, the business owner enjoys the benefit of limited liability too. In case of outstanding debts, director’s personal assets are not being touched and assets of the company or the money invested for incorporation is used in paying off the debts.
  • Easy transferability – Business owner can easily transfer the ownership of business to an individual or to a company by transferring shares after getting approval from shareholders whereas in case of sole proprietorship, no such transfer is allowed.
  • Uninterrupted existence – A private limited company enjoys the benefit of perpetual succession too as it is unaffected by the death or departure of any member of the company unlike sole proprietorship. Company continues to exist irrespective of the changes in membership.

Procedure of Converting Proprietorship Into A Private Limited Company

  • In the first step, all the directors have to apply for DSC (digital signature certificate) & DIN (director identification number) and it is a mandatory requirement.
  • In the second step, name selection is done for the new private limited company. After selecting the name, you need to check the name availability with registrar of companies (ROC). The name of the private limited company should be unique and does not match the name of any existing company.
  • After getting the name approval from the registrar, you need to complete all these procedures as early as possible –
    1. Drafting of MOA, AOA & other documents and mention “Takeover of sole proprietorship concern” as one of the objectives in MOA.
    2. Stamp duty payment
    3. Notarization of required documents
  • After completing all these procedures, you need to file an application with MCA (Ministry of corporate affairs) for registration of private limited company along with the application for DIN allotment.
  • In the fifth step, MCA will verify all documents and if found satisfactory, MCA issue a certificate of incorporation of a new private limited company.
  • Apply the fresh PAN and TAN number of the company in the sixth step.
  • Finally, change your old current bank account on new private limited company name.

Sole Proprietorship to Private Limited Company FAQ’S

Yes, it is mandatory to appoint at least 2 directors in a private limited company.
Any individual/organization can become a member of a private limited company. Foreign nationals/NRI’S can also become member in a private limited company.
No, it is 100% online procedure. There is no need to present physically during the conversion process.
The benefits of converting a sole proprietorship into a private limited company are as follows –
  1. Separate legal entity
  2. Limited liability
  3. Easy transferability
  4. Continuous existence
There is absolutely no additional payment as well as no hidden charges at all.
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