Conversion of Sole Proprietorship Businesses into Private/Public Companies

 

Where sole-proprietorship businesses have many advantages, it has many drawbacks lalso. One of the major drawback of sole-proprietorship firm is that proprietor or the owner of the business has the limited resources to run his business. Thus, sooner or later, he may feel to convert his sole-proprietorship firm into a private or public limited company.

 

Conversion of Sole Proprietorship Businesses into Private/Public Companies

Small is beautiful but a small unincorporated organization led by an Individual cannot assume growth on large scale without corporatising itself. Conversion of a Proprietorship firm into a Company is known as Corporatisation. Corporatisation has its own advantages such as Limited Liability, Perpetual Succession, Transferability of shares, easy access to funds etc.

Key Benefits:

Automatic Transfer
All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the company.No Stamp Duty
All movable and immovable properties of the firm automatically vest in the Company. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.No Capital Gain Tax
No Capital Gains tax shall be charged on transfer of property from Proprietorship firm to Company.

Continuation of Brand Value
The goodwill of the Proprietorship firm and its brand value is kept intact and continues to enjoy the previous success story with a better legal recognition.

Carry Forward and Set off Losses and Unabsorbed Depreciation
The accumulated loss and unabsorbed depreciation of Proprietorship firm is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company.

Key Conditions:
The Proprietor receives consideration only by way of allotment of shares in company.
The Proprietor share holding in the company in aggregate is 50% or more of its total voting power and continue to be as such for 5 years from the date of conversion.
Key Requirements:

• Shop Act Licence or Equivalent licence/NoC issued by the Gram Panchayat

• Minimum Share Capital shall be Rs. 100,000 (INR One Lac) for conversion into a Private Limited   Company

• Minimum Share Capital shall be Rs. 500,000 (INR five Lac) for conversion into a Public Limited Co.

• Minimum 2 Directors (for Private Limited Co.) and 3 Directors (for Public Limited Co.)

• The directors and shareholders can be same person

• DIN (Director Identification Number) for all the Directors

• DSC (Digital Signature Certificate) for one of the Directors

Steps in Conversion of a Proprietorship firm into a Company (Private/Public)
Step No.
Steps
Timeframe (Working days)
Processing
1
DSC
2
Documents required Self attested:

• Address proof
• Identity proof

2
DIN Approved DIN is a pre-requisite for incorporation process
5
Apply for DIN and get a provisional DIN

Certification/Attestation of Director’s personal details

Sending the same to the DIN Cell and getting it approve

3
Pre- Name Application Search

The Promoters have to provide atleast 6 (Six) names in the order of priority.

To make an online search of availability of names as desired by the Promoters

4
Application for Name Availability

• 6 names for the proposed Company

• Main Object Clause

6
To draft the Main Object Clause to be pursued by the Company after incorporation.
5
Representations before RoC on behalf of Promoters
1
Changes to be made in the Name application, if any, suggested by the RoC
6
Documents required

Printing of Altered Memorandum and Articles of Association (MOA / AOA)


Other Forms like:

• Form 32
• Form 18
• Form1
• Letter of Authority/PoA

2
Drafting the MOA & AOA and after getting it vetted by Promoters, sending it for printing. • Processing of eForms: Stamping of documents namely:

• MOA
• AOA
• Letter of Authority/PoA
• Form1

7
Final Process:

Filing all the above documents with the ROC, follow up with the ROC, making changes to the MOA / AOA/otherIncorporation
documents as suggested by the ROC
4
• Online uploading of e-Forms
• Payment of Registration fees
• Collecting the Certificate of Incorporation

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