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Convert Proprietorship to Private Limited Company in India

Converting a sole proprietorship into a Private Limited Company in India is a strategic move for entrepreneurs seeking scalability, credibility, and legal separation between personal and business liabilities. This transformation allows access to better funding opportunities, limits personal risk, and enhances brand value. The process involves incorporating a new Private Limited Company and transferring assets, licenses, contracts, and liabilities from the proprietorship. It requires compliance with the Companies Act, 2013, and coordination with regulatory authorities like the Ministry of Corporate Affairs (MCA). This shift is ideal for growing businesses ready to formalize their structure and expand operations professionally.

Requirements to Convert Proprietorship to a Private Limited Company

To successfully convert your sole proprietorship into a Private Limited Company in India, the following requirements must be fulfilled:

  • Minimum Two Directors: One of them must be an Indian resident as per the Companies Act, 2013.
  • Minimum Two Shareholders: Directors can also act as shareholders.
  • Digital Signature Certificate (DSC): Required for all proposed directors for filing incorporation forms.
  • Director Identification Number (DIN): Mandatory for all directors. Can be obtained during incorporation.
  • Company Name Approval: The proposed name should be unique and not infringe any existing trademarks. You may retain the proprietorship brand if available.
  • Registered Office Address : A valid address proof and NOC (No Objection Certificate) from the property owner (if rented) is required.
  • Consent from Proprietor: A formal declaration to transfer business assets, liabilities, and goodwill to the new company.
  • Asset & Liability Transfer Documents: Agreements to legally transfer the proprietorship's assets, contracts, and liabilities to the Private Limited Company.
  • PAN, Aadhaar, and ID Proof of Directors: Mandatory for verification and KYC compliance.
  • Bank Statement / Utility Bill: To serve as proof of address for directors and the office location.

These requirements form the foundation for filing the SPICe+ incorporation form with the Ministry of Corporate Affairs (MCA). LegalBabu assists in fulfilling all prerequisites and ensures a hassle-free conversion.

Advantages to convert proprietorship to a Private Limited Company in India

Converting a proprietorship to a Private Limited Company offers several benefits:

  • Limited Liability: Your personal assets are protected - shareholders liability is limited to the amount they have invested.
  • Separate Legal Entity: A Pvt Ltd Company has its own legal identity, separate from its owners, it can own property, open bank accounts, and enter into contracts in its own name.
  • Better Fundraising Options: It is easier to raise equity capital from investors, venture capitalists, or banks, compared to a proprietorship.
  • Credibility & Trust: Being a registered company improves your brand image with customers, vendors, and other stakeholders.
  • Perpetual Succession: The company continues to exist even if the owner or directors change or pass away.
  • Easy Ownership Transfer: Shares can be transferred easily to new or existing shareholders.
  • Tax Planning Benefits: Companies can avail various tax deductions and have more structured tax planning options.
  • Attract & Retain Talent: You can issue ESOPs (Employee Stock Options) to attract skilled employees and retain them.

Procedure to Convert proprietorship to a Private Limited Company in India

The procedure for converting an proprietorship to a Private Limited Company involves a series of legal steps, requiring careful documentation and filing. Here is a breakdown:

  • Obtain DSC & DIN
    • Apply for Digital Signature Certificates (DSC) for all proposed directors.
    • Apply for Director Identification Numbers (DIN) through the SPICe+ form.
  • Name Approval
    • File the RUN (Reserve Unique Name) or Part A of the SPICe+ form to get the company name approved by MCA.
    • The name can reflect the old proprietorship if you wish to retain brand recognition.
  • Draft MOA & AOA
    • Draft the Memorandum of Association (MOA) and Articles of Association (AOA).
    • Include a clause for takeover of the sole proprietorship business.
  • Execute Business Transfer Agreement
    • Draft and sign a Slump Sale Agreement or Business Transfer Agreement between the proprietor and the new company.
    • This should specify the transfer of all assets, liabilities, goodwill, and business undertakings.
  • File Incorporation Forms
    • File the SPICe+ form (INC-32) along with:
    • MOA (INC-33)
    • AOA (INC-34)
    • Declaration by directors and subscribers
    • Proof of office address
    • NOC from the property owner
    • Affidavits and declarations as required
  • Get COI, PAN & TAN
    • Once approved, you will receive the Certificate of Incorporation (COI), PAN, and TAN for the new company.
  • Apply for GST & Other Registrations
    • Update your GST registration to reflect the new company (apply for fresh registration).
    • Update other licenses like Shops & Establishment or MSME as needed.
  • Transfer Assets & Liabilities
    • Transfer all assets, liabilities, and bank accounts to the new company.
    • Close the old proprietorship accounts once transition is complete.
  • Intimate Stakeholders
    • Inform customers, vendors, banks, and other stakeholders about the conversion.
    • Update invoices, letterheads, and branding materials.

Documents required to Convert proprietorship to a Private Limited Company in India

To complete the filing of the application, the following documents must be submitted:

  1. Identity & Address Proofs
    • Proprietor PAN Card
    • Proposed Directors PAN Cards
    • Aadhaar Card / Passport / Voter ID / Driving License of all directors and shareholders
    • Latest address proof: Bank statement, utility bill (not older than 2-3 months)
  2. Registered Office Proof
    • Latest electricity bill, water bill, or property tax receipt
    • NOC from the owner if the premises is rented
    • Rent agreement (if applicable)
  3. Digital Signature Certificate (DSC)
    • Required for all proposed directors (Class 3 DSC recommended)
  4. Business Transfer Documents
    • Business Transfer Agreement
    • Stating that all assets, liabilities, goodwill, and business operations are being transferred
    • Statement of assets and liabilities of the existing proprietorship.
    • Undertaking by the proprietor for the transfer.
  5. Other Incorporation Documents
    • Memorandum of Association (MOA)
    • Articles of Association (AOA)
    • Declaration by directors and subscribers in INC-9
    • INC-8 declaration (compliance with requirements)
    • Form DIR-2: Consent to act as director
    • Form INC-14 & INC-15, if applicable (professional declarations)
    • Board Resolution for adoption of Business Transfer Agreement (after incorporation)
  6. Additional Documents
    • Passport-size photographs of all proposed directors
    • Email IDs & mobile numbers of all directors for DSCs
    • Draft letterheads and company name approval letter.

FAQs on Conversion of proprietorship to a Private Limited Company in India

To know more about the conversion from proprietorship to a Private Limited Company in India, we have it covered for you:

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