Convert Proprietorship To Pvt Ltd Company

Services Overview

An idea germinates to become a business takes the form of a sole proprietorship and its growth that forces it to grow like a strong tree, that is when converting itself into a company becomes essential. A sole proprietorship business set up earns limited profits. It is the profit that motivates to set up a business. Benefits and profits are the reason to switch from proprietorship to a private limited company. It is wise to move to a private limited company to keep pace with the boom in the economy to reap the maximum profit. 

Benefits of becoming a Private limited company

New Identity: As a sole proprietor, the owner identifies himself with his business. However, a private limited company is a legal entity and a separate legal person from the owner of the business. In the famous case of Solomon Vs Solomon, the court held that shareholders are separate from the company. 

More Funds: A registered company opens more avenues of raising funds through bonds, stock and banks too, prefer lending at a competitive rate for business with growth plans. The government has also introduced many financing schemes for new businesses set up for a company.

Shift from complete liability to limited liability: In a private limited company, as the name suggests, the liability is limited to the amount of share held by the company. There is no personal liability, unlike in sole proprietorship where the personal liability is unlimited. 

Perpetuity: A registered private limited company has a continuity even after the demise of the founder, or the owner of the company. A legal heir or representative of the estate can continue the business. Whereas in sole proprietorship the business comes to a standstill in the event of the demise of the owner.

Growth: For a Private limited company sky is the limit and they have all the opportunity to create and grab to grow in profit and as a company. In the case of a sole proprietorship, growth leads to eventually converting a sole proprietorship to a Pvt ltd company.

Risk: Sole proprietors have a high risk in business as they are personally liable for the loss and their loss is unlimited. Whereas Private limited company enjoys limited liability and loss is settled from the assets held in the name of the company and from its stock. 

Taxation: A registered company is taxed differently. Profits earned are considered as a personal income of the sole proprietor for taxation. They have a tax slab whereas companies have flat tax rates.

Administration: A sole proprietor is the main authority in the business and all the decisions are made by the proprietor alone. The formation of the company gives the advantage to hire the required qualified staff and employees to delegate ancillary works. A company is a collective effort of a team working towards the same vision and goal.

Minimum Requirements

1. Minimum two directors to form a company and one of which can be the proprietor himself.

2. All directors have their director identification number.

3. Minimum two shareholders which can be same as directors 

4. Minimum capital of Rs 1 lakh.