Sole Proprietorship to Private Limited Company
A sole proprietorship firm can be easily converted into a Private Limited Company to avail various benefits like limited liability, continuous existence, a separate entity, infusion of additional investors, etc. A Private Limited Company is one of the popular business organizations amongst startups and emerging businesses.
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Small businesses formed as sole proprietorships generally struggle to upscale their venture due to minimal investment capacity, unlimited liability, no separation between ownership and management, no perpetual succession after the death of a sole person, etc. It also cannot induct new investors on the Board and is less preferred for investment. Start-ups and growing businesses started as sole proprietorships choose to convert into Private Limited Company because it allows outside funding to be raised easily, limits the liabilities of its shareholders, and enables them to offer employee stock options to attract top talent.
A Private Limited Company is a type of privately held small business entity, which is considered a separate legal entity in the eyes of law, provides separation between ownership and management, restricts shareholding upto 200 or fewer members, and shares are prohibited from being publicly traded. A sole proprietorship can be converted into a private limited by executing a sale/takeover agreement and mentioning the takeover of the business of a sole proprietor as the main object in its Memorandum of Association (MOA).
Conditions for Conversion of Proprietorship Firm into Pvt Ltd Company
- All the assets and liabilities of the sole proprietorship must be transferred to the company.
- The shareholding of the sole proprietor should be atleast 50% of the total share.
- The shareholding of sole proprietor must be continued for a period of 5 years.
- Any additional benefits or consideration shall not be provided to sole proprietor except allotment of shares.
- The Memorandum of Association (MOA) of the company shall have one of its objects as “The takeover of a sole proprietorship”.
- A sale or takeover agreement has to be executed between the sole proprietorship firm and company.
Advantages of Converting a Sole Proprietorship into Pvt Ltd Company
Minimum Requirements for Conversion
What Is Included in Our Conversion Package?
Procedure for Conversion of Sole Proprietorship into Pvt Ltd Company
Documents Required for Conversion
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