Convert Sole Proprietor to Private Limited what is the legal procedure

665 votes

Based on the Limited query that you have asked I will give my opinion only on that particular aspect.

The provision that you have cited from the Income Tax Act says that, when a proprietorship is converted into a private limited company, the consideration that the proprietor receives should only be in the form of shares of the newly formed private limited company. In other words if there is any other consideration in any other form then in shares that particular consideration will be taxed as a separate income. Now as far as your query is concerned, the proprietor can be an employee or a director in the company. When he becomes an employee or the director, the salary that you will be drawing will be a separate income, and this income derived from the salary will be taxed accordingly.

To put it succinctly, consideration to the proprietor in any other form for giving his business to the private limited company will be taxed.

LawRato LawRato

940 votes

1. Company is limited by share or guarantee or by both or unlimited, this is the 1st step which is essential while talking about salary of any other monetary transaction with the company. To be noted that if the company is registered under sec 8 of the Companies Act, 2013 “ Non-profit making company” there is no question of salary other than that all company is entitled to allow salary to his Director

2. Note Proprietorship is not a separate legal entity, hence it cannot be member or shareholder or promoter of the company


3. Albeit, Proprietor (owner of the proprietorship) entitled to be a member, shareholder, director and promoter of the company as result he is also entitled to salary as Director of the company subject to MOA in the for P.Ltd company except company registered U/s 8 and Public Ltd company.

4. One person company,

Advocate Satya Prakash Hariom Shukla LawRato