Many new entrepreneurs start their small-scale businesses as a sole proprietor due to its minimal compliance requirements and low annual filing expenses. But as the business grows, the next step would be to expand the business by converting the sole proprietorship into a Private Limited entity. A private limited company is the most popular and preferred corporate structure amongst small, medium and large enterprises. A Private company can start its business as soon as it incorporated. It is beneficial to convert sole proprietorship into a private limited company because it diversifies and expands the business of owner. A private company provides limited liability to its shareholders and legal protection as well.

In order to convert a sole proprietorship concern into a private limited company, an agreement has to be executed between the sole proprietor and the private limited company (after its incorporation) for the sale of the business.
 

Why should you convert a Sole Proprietorship Firm into Private Limited Company?

1. Separate legal entity
In a Sole proprietorship, the concept of separate legal entity does not exist, whereas, a private limited company exists as a separate legal entity where the owner is separate from the management of the company.
 
2. Perpetual Succession
In a sole proprietorship, perpetual succession does not exist. It means the death of a person affects the business of sole proprietorship, whereas, in private limited company is unaffected by the death or departure of a member.
 
3. Limited Liability
In a sole proprietorship, the liability of the owner is unlimited and creditors may sue the owner personally to satisfy the debt, whereas, in a private limited company the liability of each member is limited to the extent of their share value and personal property of the members is completely safe.
 
4. Number of Members
There is a restriction on the maximum number of members in a sole proprietorship which does not exceed more than one whereas, in a private limited company such a restriction does not exist, the minimum person required to start a company is two and the maximum number shall not exceed 200.
 
5. Transferability of Shares
In a Private limited company, there is no restriction in transferability of shares whereas, in a sole proprietorship, transferability of shares is not allowed.
 
6. Existence
A private limited company is independent of its member and directors, whereas, in a sole proprietorship, there is no such independence. It is solely and totally dependent on the owner. So, basically, in private limited company, there is an independent existence as compared to a sole proprietorship.
 

Process of conversion of sole proprietorship into private limited company

• Obtain Director identification number (DIN) for proposed director
• Obtain Director signature certificate (DSC) for proposed director
• Select suitable company name, and make an application for approval of name from ministry of corporate affairs (MCA)
• Draft Memorandum of Association(MOA) & Article of Association (AOA)
• Payment of fees to registrar of company (ROC)
• Receipt of certificate of incorporation (COI)

Documents required for conversion of sole proprietorship into private limited company

• Passport size photograph of Director
• Scanned Copy of Voter ID card/ Aadhaar  Card
• Scanned Copy of Pan card of every Directors
• Scanned  Copy of Electricity Bill/ Water Bill
• Landlord Non Objection letter(NOC)
• Proprietorship  Registration Certificate

What is included in our package?

• Director Identification Number(DIN) for 2 Directors
• Digital Signature Certificate (DSC) for 2 Directors
• Name Search and Approval
• Drafting of Memorandum of Association(MOA) & Article of Association(AOA)
• Registration Fees
• Apply for fresh PAN and TAN Number of the company

You May Also Want to Know

1. How many members are required for a Private limited company?
    Ans. Minimum 2 persons are required for incorporation of a private limited company and that number does not exceed 200 persons.

2. Who can be a member of a private limited company?
    Ans. Any individual or organization can become the member of a private limited company including foreign national/ NRI.
 
3. How many Directors are required at the time of incorporation of a Private limited company?
    Ans. At least 2 Directors are required at the time of incorporation of a Private limited company.
 
4. Can a foreign national/ NRI become the member of a private limited company?
    Ans. Yes, a foreign national/ NRI become the member of a private limited company.
 
5. Are liabilities of members limited to a private limited company?
    Ans. Yes, in a private limited company, the liability of its members is limited. It is limited to the value of shares of the member.
 
6. What are the features of a Private limited company?
    Ans. Features of Private limited company are as follows:-

1. Separate legal entity
2. Perpetual succession
3. Limited liability
4. Easily transferability of shares
5. Independent existence