Conversion of Proprietorship to Private Limited Company
LLP or Limited Liability Partnership is a partnership (generally in a business) in which all the members (partners) have limited liabilities. Generally, an LLP is set up under legal terms and documents. There is a defined procedure as to how you can register your LLP. There are certain benefits to be in an LLP but like everything, it has its own disadvantages too. Sometimes, it so happens that people are confused as to how to get your LLP registered, however, most of them don’t even know that there is a defined procedure as to how you can close an LLP. Described below, to remove such misconceptions is a procedure with which you can close LLP in India. Starting a business as a Sole Proprietorship is a common practice by most of the people due to low compliance requirements. But with the increase in business and growth in income, there is a need to separate the bank accounts and the tax filings of the Sole Proprietor and that of the business. To accomplish this separation a possible solution is to convert the Sole Proprietorship into a Private Limited Company as it offers various benefits over proprietorship like limited liability, ability to attract equity capital, continued existence, etc.
Following are some requirements to be kept in mind while converting proprietorship into a private limited company:
Ways to close LLP
- To convert a Sole Proprietorship into a Private Limited Company, an agreement has to be executed between the Proprietorship and the Private Limited Company (once it is incorporated) for the sale of the business. To convert a Sole Proprietorship into a Private Limited Company, an agreement has to be executed between the Proprietorship and the Private Limited Company (once it is incorporated) for the sale of the business.
- Further, such Private Limited Company so incorporated must have “the takeover of a Sole Proprietorship Concern” as one of the objectives in its Memorandum of Association.
- Transfer of all assets & liabilities to the private limited company.
- The sole proprietor as a member of the board of directors with at least 50% voting power.
- No benefit direct or indirect to sole proprietor other than by way of allotment of shares.
- Minimum 2 shareholders & 2 directors for private limited company.
- DIN for all directors.
Our Company Registration package includes the following:
- DSC for one director and DIN for up to three directors
- Drafting of MoA & AoA
- Registration fees and stamp duty
- Company Incorporation Certificate
Benefits Of Converting into Private Limited Company
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NO MINIMUM CAPITAL
No requirement of minimum paid-up capital required for starting a Private Limited Company.
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EASE OF FORMATION
A Private Limited Company can be easily registered and is easy to manage and run with less legal compliance's.
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BUILD A GREAT TEAM
Today, in the business world it is important to have the option of providing stock ownership or ESOPs to employees which can be offered only by Limited companies.
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SEPARATE LEGAL ENTITY
The biggest advantage of a Private Limited Company is that its identity is distinct from that of its members which ultimately limits the liability of members. A company is a separate person having its rights & Obligations enabling it to enter into contracts in its name, right to sue & be sued.
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PERPETUAL SUCCESSION
In case of the death of the owner or transfer of shares, your business won’t get affected as the company is considered as separate from its members.
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LIMITED LIABILITY
The greatest benefit of Private Limited Company is a limited liability. If any liability arises then its member’s assets remain unaffected; members are only liable for unpaid shares held by them and not more than that. Stakeholders are not liable for corporate debts and liabilities.
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GREATER FLEXIBILITY
A Private Limited Company is required to perform lesser legal formalities as compared to a Public Limited Company. It enjoys special exemptions and privileges under the company law. Therefore, in Private Limited Company, less number of compliance is required.
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SECRECY
A Private Limited Company is required to perform lesser legal formalities as compared to a Public Limited Company. It enjoys special exemptions and privileges under the company law. Therefore, in Private Limited Company, less number of compliance is required.
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ATTRACT INVESTMENT
Private limited companies easily accommodate equity funding as there is a clear distinction between shareholders and directors as well as limited liability. Venture capitalists and private equity funds prefer to invest in this structure.
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TRANSPARENCY & CREDIBILITY
Private Limited Company enjoys enhanced transparency as the information relating to a company is available in a publicly searchable database. Thus, able to win the trust of the general public & improve business credibility.
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EXIT PLAN
It offers the best type of exit plan for all promoters. Only the shares of a company can be sold or transferred to another entity without any hassles, while the business remains a going concern.
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GOING INTERNATIONAL
A private limited company allows FDI up to 100% through automatic route without any prior government approval.