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Proprietorship to Private Limited Company

As a business grows, the requests of business and the drawbacks of an ownership firm could hamper a business individual to start the process to convert ownership into private limited company. A private limited company contributes significant benefits over the ownership nature of business, including that of forced responsibility, ability to draw in fair capital, stable presence and others.

Comparison between Proprietorship and Private Limited Company

Let us know the concerns of the entrepreneurs who want to switch from proprietorship to private limited company :

Separate Legal Unit

In connection with sole proprietorships, the proprietor and the business are one and the related to law and in your dealings with society. In spite of the fact that you have the advantage of enhanced self-governance over the business and its activities, you are financially and legally in charge of all risk associated with the business, such as obligations and claims.


As private limited company is registered under the Companies Act 1956, a business has a dissimilar legal entity from the proprietor and the organisation members have limited liability. In the case of sole ownership, providers of loan may take legal step against you for debts took place and venture into own assets and property. As a result, a sole proprietorship encounters serious danger of entire personal budgetary ruin disparity with a CEO of a Private Limited organisation.

Advantage of Tax

Private Limited companies include better contribution on corporate tax regarding their advantages and profits that the investors obtain profits are not taxed. Duties are determined at your own income tax rate.

Limited capital

Sole proprietorship regularly includes limited subsidising raising choices, irrespective of whether as much as getting advances from monetary firms or as much as equity fundraising from financial experts that denotes your sources of working capital are controlled to your own cash and the moving over of any advantages you create from the business.

Continuous Development

Legal presence of a sole ownership depends upon your reality therefore your retirement or end will accordingly mean the stop of your business, in this way, your relatives and companions who are eager on taking place with the business would definitely do not be competent to perform so without the managerial difficulty of joining the business that is not the condition for a Private Limited Company.

Public Insight

Sole ownership encounters troubles in working together on a bigger scale in light of the information that the acknowledgment is not accurately good than if they somehow come about to perform it with a better business matter like a Private Limited Company supervises you. Besides, it is more difficult for sole ownership to draw high value workers who are keen and who view the business as providing little entry door for growth just as being unsteady as compared to Private Limited Company.

Administrative Difficulty

On the contrary, the reliability prerequisites of a Private Limited Company are a lot more than those of sole proprietorship is it in the constant steadiness or the issues to be dealt with after twisting up are more complicated as compared to sole ownership. Likewise, the Private Limited Company is governed by the principles, laws, and rules under the Indian Companies Act.

Needs of Conversion

The owner must assure reliability with the associated requirements before beginning the conversion of proprietorship into a private limited company. Let us focus on the requirements for conversion :

An understanding must exist between the sole proprietor and the private limited company.

The Memorandum of Association (MOA) of the Private Limited Company must include a part that mentions "The takeover of a sole proprietorship concern".

All the advantages and liabilities of the sole proprietorship business must be converted to the private limited company.

The sole proprietor should be a member of board of directors of the organisation with a voting rule that consists of any event half of that of the organisation. It might be noted that a private limited company should have minimum 2 directors.

The incorporation rules of a private limited company make it compulsory that the minimum share capital limit must be Rs 100000.

Compulsory Documents

Following documents are needed for conversion of sole proprietorship into private limited company :

Basic ID and address proof of the directors of the company

Letter of authority/power of attorney

Proof of registered office address can be presented in the form of a copy of the rent agreement, electricity bill, sale deed and so on.

The associated individual requires offering Form 1, Form 18 and Form 32. The documents and forms mentioned here should be uploaded on the official website of the Ministry of Corporate Affairs (MCA).

Declaration of Incorporation

After offering all the obligatory procedures stated above, the Ministry of Corporate Affairs give approval for the preset completion requirements. If the directing body considers that it is satisfactory, the asset will be provided with a Certificate of Incorporation that sufficiently develops new private limited company.

Frequently Asked Questions

Ques: When the tax payer can claim refund from electronic cash ledger?

The electronic cash ledger includes records that include the surplus amount paid by the tax payer, you can simply follow and request for submitting.

Ques: How do banks calculate the needs of working capital of borrowers?

Working capital is required by companies to maintain with their operations and banks calculate the needs of the borrowers using some methods.

Ques: What is the role of Aadhaar number for filing the tax returns?

It is compulsory to link Aadhar with PAN card. Non-resident Indians and people of certain states do not link PAN card with Aadhar card.

Ques: What is the function of ISO standards?

ISO standards include tool that helps to make the products and service consistent and secure. It also helps to cut expenses by managing misuse and mistakes.

Ques: What is the advantage of NGO?

An NGO is an organization dedicated to social work and non profit actions for the development of the society. This is made achievable through donations from foreign and Government resources.

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