CONVERT YOUR BUSINESS
SOLE PROPRIETORSHIP TO PRIVATE LTD COMPANY
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OVERVIEW
PROPRIETORSHIP FIRM TO PRIVATE LIMITED COMPANY
Many entrepreneurs begin their business journey by choosing a proprietorship-styled business model owing to its facile and easy formation. Such firms are relatively easy to initiate, entail minimal legal formalities and require only a few compliances. They prove to be an impeccable choice for small enterprises with restricted capital and resources, as the proprietorship model bestows complete autonomy to the proprietor, who can take swift decisions.
Nonetheless, as the business scales up and the profit margin increases, it becomes imperative to mull over transforming the proprietorship firm into a private limited company. The reasons behind this are substantial and necessary, and one must give careful consideration to them. For instance, a private limited company offers greater credibility, enhanced funding opportunities, and limited liability protection, which can shield the proprietor from personal financial risk.
Furthermore, it provides a comprehensive legal structure, better tax efficiency, and facilitates the attraction of potential investors, among other advantages. Therefore, it is an obvious choice to transition into a private limited company to ensure the long-term success and viability of one’s business.
PROPRIETORSHIP FIRM TO A PRIVATE LIMITED COMPANY
WHY SHOULD ONE CONSIDER CONVERTING HIS PROPRIETORSHIP FIRM TO A PRIVATE LIMITED COMPANY?
A Private Limited Company is considered superior to a Proprietorship firm due to several reasons. Here’s a detailed explanation of some of the advantages of a Private Limited Company over a Proprietorship firm:
Limited Liability Protection:
A Private Limited Company offers limited liability protection to its shareholders, which means that the personal assets of the shareholders are protected from any financial liabilities or debts of the company. In a Proprietorship firm, the proprietor’s personal assets are not separated from the business, which means that the proprietor is personally liable for all the debts and obligations of the business.
Separate Legal Entity Status:
A Private Limited Company is a separate legal entity from its shareholders, which means that the company has its own legal identity and can own assets, enter into contracts, sue, and be sued in its own name. This protects the shareholders from any legal or financial liabilities that the company may face.
Credibility:
A Private Limited Company has more credibility in the market than a Proprietorship firm. It has a separate legal entity, a board of directors, and a registered office, which gives it a more professional image and makes it easier for the company to attract investors, customers, and suppliers.
Better Access to Capital:
A Private Limited Company has better access to capital than a Proprietorship firm. It can raise funds from multiple sources, including equity shares, debentures, and other financial instruments. This makes it easier for the company to expand its business, invest in new projects, and explore growth opportunities.
Perpetual Succession:
A Private Limited Company has perpetual succession, which means that the company can continue to exist even if the shareholders change. This gives the company stability and continuity and makes it easier for the company to raise funds, attract customers, and enter into long-term contracts.
Tax Benefits:
A Private Limited Company enjoys certain tax benefits that are not available to Proprietorship firms. For example, a Private Limited Company can carry forward losses, claim tax deductions on business expenses, and has lower tax rates on profits.
ESSENTIAL PAPERWORK
ESSENTIAL PAPERWORK FOR CONVERTING YOUR PROPRIETORSHIP FIRM TO A PRIVATE LIMITED COMPANY.
To convert a proprietorship firm to a private limited company in India, the following documents are required:
- Digital Signature Certificate (DSC) of the proprietor and the proposed directors.
- Director Identification Number (DIN) of the proprietor and the proposed directors.
- Memorandum of Association (MOA) and Articles of Association (AOA) of the proposed private limited company.
- Declaration of the proprietor and the proposed directors stating that they are not disqualified from being appointed as directors under the Companies Act, 2013.
- Affidavit of the proprietor and the proposed directors stating that the information provided in the documents and forms is true and accurate.
- Consent of the proposed directors to act as directors of the private limited company.
- Copy of the PAN card of the proprietor and the proposed directors.
- Copy of the Aadhaar card or passport of the proprietor and the proposed directors.
- Proof of address of the proprietor and the proposed directors, such as bank statement, electricity bill, telephone bill, or rent agreement.
- Proof of ownership or lease of the registered office of the private limited company.
- No Objection Certificate (NOC) from the owner of the registered office premises.
- Name approval letter from the Registrar of Companies (ROC).
- Form SPICe 32, which includes the MOA and AOA of the proposed private limited company.
- Form DIR-12, which includes the details of the proposed directors.
- Certificate of Registration of the existing proprietorship firm.
The above-mentioned documents are necessary for converting a proprietorship firm to a private limited company.
Note: This is an extensive list and some may not be required depending on your state where your Business is located and the nature of your Business. Taxkey will help you in every step throughout the process of conversion of your business especially in the procurement of the required documents needed for conversion.
CONVERT YOUR PROPRIETORSHIP FIRM
HOW TO CONVERT YOUR PROPRIETORSHIP FIRM TO A PRIVATE LIMITED COMPANY IN INDIA?
The conversion of your Proprietorship Firm to a Private Limited Company is a completely online process and it can be done using the MCA portal. To use the MCA (Ministry of Corporate Affairs) portal to convert your proprietorship firm to a private limited company in India, follow these steps:
STEP 1: Create an Account on MCA Portal
If you do not already have an account on the MCA portal, you need to create one. Go to the MCA website (www.mca.gov.in) and click on the “Register” button on the top right corner of the home page. Follow the instructions and fill in the required details to create your account.
Step 2: Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN)
The proprietor and the proposed directors of the private limited company must obtain a digital signature certificate (DSC) and Director Identification Number (DIN) from the MCA portal.
Step 3: Check Name Availability
Log in to your MCA account and go to the “MCA Services” tab. Click on “Check Company Name” and enter the proposed name for your private limited company. The MCA portal will check the availability of the name and inform you if it is already taken or available.
Step 4: File SPICe Form
Once the name is approved, file the SPICe (Simplified Proforma for Incorporating Company Electronically) form on the MCA portal. The SPICe form includes details such as the name of the company, registered office address, details of the proposed directors, and the MOA and AOA of the company.
Step 5: Pay Fees and Submit Documents
Pay the necessary fees and submit the required documents along with the SPICe form on the MCA portal. The required documents include the MOA and AOA of the company, declaration and affidavit of the proprietor and proposed directors, proof of address and identity of the directors, and proof of ownership or lease of the registered office premises, among others.
Step 6: Obtain Certificate of Incorporation
After verifying the documents and forms, the ROC (Registrar of Companies) will issue a Certificate of Incorporation, which signifies the conversion of the proprietorship firm to a private limited company. The private limited company can start its operations after obtaining the Certificate of Incorporation.
With our comprehensive service at Taxkey you can leave all this work to our experts to decrease the chances of facing rejection in your conversion process when using the MCA portal. Taxkey has more than a decade of experience in this sector and helped hundreds of companies to convert their Proprietorship firm.
HOW CAN TAXKEY HELP
HOW CAN TAXKEY HELP IN THE CONVERSION OF YOUR PROPRIETORSHIP FIRM TO A PRIVATE LIMITED COMPANY?
Taxkey can indeed provide valuable guidance and support during every step of the conversion process, especially when it comes to navigating the legal and tax requirements. Converting a business from one entity type to another can be a complex process that involves a variety of legal and tax considerations, such as filing the necessary paperwork, obtaining any required licenses and permits, transferring assets and liabilities, and ensuring that all tax obligations are met.
Taxkey can help business owners understand these requirements and assist with the necessary filings and paperwork, helping to ensure that the conversion process goes smoothly and that the business owner is in compliance with all legal and tax obligations. Additionally, Taxkey can provide guidance on the potential tax implications of the conversion, helping the business owner understand any potential tax liabilities and plan accordingly.
Overall, working with a knowledgeable and experienced professional like Taxkey can help make the conversion process less stressful and more successful, allowing business owners to focus on running their business and achieving their goals.
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