Last updated: November 1st, 2021 4:00 PM

Convert a Sole Proprietorship to a Private Limited Company

Sole Proprietorship is a business entity that is wholly owned and controlled by an individual, individuals who want to start a business can register Sole proprietorship. As the business grows it is necessary to convert it into a Private Limited company for better advantages. It is better to opt for a Company as it gives the entity status of the separate legal entity but also a Private limited company has more advantages than a sole proprietorship. A private limited company has significant advantages over other types of business ownership. Here we will look at the requirements and the procedure for converting a sole proprietorship into a company. Before we talk about the conversion we will talk about the difference between the sole proprietor and the Private Limited Company.

Sr. No	Difference	Sole Proprietorship	Private Limited Company
1	Registration	Informal Registration	Is registered under the Companies Act, 2013
2	Legal status	Is not a separate legal entity	Is a separate legal entity under the Companies Act,2013
3	Transferability of shares	Not transferable	Shares are transferrable
4	Liability	Unlimited	Limited by the extend of shares
5	Members	1 member only	Minimum 2 member Maximum 200
6	Taxation	Income tax is the same for the proprietor and the proprietorship	The profits are taxed at 30% surcharges and cess as applicable
7	Compliance	-	Annual return, Annual accounts are required to be filed with the ROC every year.

 

Conditions for converting of a Sole Proprietorship

• For converting an agreement has to be made between the sole owner and the Private Limited Company.
• The MOA has to include a line that says -