Conversion from Proprietorship firm into Private Limited Company
If you are running your business as an individual it means you are running your proprietorship firm, which is not governed by any law. If you want to grow your business in a more systematic and managed way , then it is good to recommend you for converting it into Private Limited Company. Though there is no specific provision given under Companies Act 2013 for conversion of Proprietorship firm into Private Limited Company, but as a normal practice, we advise for proprietorship firm being takeover by new Private Limited Company while registering it.
Why conversion?? or Advantages of Private Limited Company
- The foremost benefit is branding of your business as Private Limited Company is widely accepted business structure in India. So, if you are converting your business from proprietorship to private limited company then the stakeholders can presumed that the business is growing.
- Automatic transfer- On conversion all the assets & liabilities of the proprietorship firm automatically becomes the assets & liabilities of the Company.
- Perpetual succession – Company enjoys the status of perpetual succession as it does not come to an end if the shareholders or members cease to exist. The company goes on and has perpetual succession.
- No capital gains tax – No Capital Gains tax shall be charged on transfer of property from Proprietorship firm to Private Limited Company.
- Limited liability – Businesses often need to borrow money. In structures such as General Partnership, partners are personally liable for all the debt raised. So if it cannot be repaid by the business, the partners would have to sell their personal possessions to do so. In a private limited company, only the amount invested in starting the business would be lost; the directors’ personal property would be safe.
- Carry Forward and Set off Losses and Unabsorbed Depreciation – The accumulated loss and unabsorbed depreciation of Proprietorship firm is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company.
Procedure for conversion of Sole Proprietorship firm into Private Limited Company:
- Obtaining Digital signature Certificate: Digital Signature Certificate is required to be obtained by any one of the director of the company.
- Apply for DIN: The directors should apply for DIN.
- Uploading form with Registrar : Application is required to be made in Form INC-29. E Form INC-29 deals with the one single integrated application for reservation of name, incorporation of a new company and/or application for allotment of DIN. This e-Form is accompanied by supporting documents including details of Directors & Subscribers, MoA and AoA etc. Once the e-Form is processed and found complete, company would registered. Also DINs gets issued to the proposed Directors who do not have a valid DIN. Maximum three Directors are allowed for using this integrated form for allotment of DIN while incorporating a company.
- Further attachments to this conversion would be the following;
- Affidavit by the Sole Proprietor
- Statement of Assets & Liabilities as on date by Chartered Accountant.
- Income Tax Returns Acknowledgement.
- PAN Card of the Sole Proprietor.
- Sales Tax Registration Number, if you have.
- Any other Proof showing the name of the Proprietorship firm.
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