In India, many entrepreneurs initially start their business as a sole proprietorship because of its low compliance requirements. After certain years, the business will boom and the revenues involved will become more.Now, in order to limit the liability and to detach the bank accounts and tax filing of an individual, a sole proprietorship to private limited company conversion will be done.By conversion of proprietorship into private limited company under companies act 2013, it becomes a separate legal entity thereby reducing the risk of liability and the personal assets will remain untouched except in case of fraud.
Even after the conversion takes place, the old sole proprietorship will hold 50% of shares in a new private limited company. i.e 50% of the voting rights will be held by a sole proprietorship. The old sole proprietor will hold shares for a minimum period of 5 years from the date of incorporation of a new private limited company. Similarly, there will not be any monetary consideration between a sole proprietorship and private limited company as it is a mere conversion, not sale. Procedure to Convert Proprietorship to Private Limited Company The procedure to perform takeover of sole proprietorship by private limited company in IndiaÂ
Converting to a private limited company provides limited liability, risk protection, enhanced business authenticity, access to financial resources, structured taxation, and greater stability. It also attracts more customers, investments, and offers liability protection.
Benefits include limited liability, risk protection, increased business authenticity, access to financial resources, liability protection, greater capital contribution, stability, potential for growth, continuity beyond directors/shareholders, legal immunity, and lower tax rates.
The conversion establishes the private limited company as a separate legal entity, limiting personal liability. Personal assets remain untouched, except in cases of fraud, reducing the risk associated with business operations.
