Conversion of Sole Proprietorship Into Company By CS Tanuj Saxena

Sole Proprietorship is a business entity is wholly owned and controlled by an individual, it is a good form of business for individuals who want to start small but as business grows it necessitate converting it into some greater form for greater advantages.

Many opt for  choice of Private Limited Company as it give it a status of separate Legal entity also a private limited company offers significant advantages over the sole proprietorship.

Point of  Difference

     Sole Proprietorship

 Private Limited Company



No Formal Registration

A Private Ltd. Company is registered under Companies Act 2013


Legal Entity Status

Does not hold any Separate Legal Entity.

Hold separate Legal entity under the Companies Act 2013


Transferability of shares

Non Transferable

Shares can be transferred




Limited to extend of shares



Minimum- 1 Member

Maximum – 1 Member

Minimum- 2 Member

Maximum – 200 Member



Owners income tax

Profits are taxed at 30% plus surcharges and cess as applicable



Not required

Annual Return, Annual Accounts required to be filed with the Registrar of Companies every year.

Process of Conversion of Sole Proprietorship into Private Limited Company:

 Every First step is Name Reservation for the proposed Company

Name Reservation can be done through “RUN”; it is a simple and easy to use web service for reserving a name for a new company.

Next: Incorporation through SPICE+ Form

A Private Limited will be incorporated through SPICE+ Form and Agile Pro +

SPICE+ form is divided into two parts-

Part –A

  • Name Reservation of the Company

Part – B

  • Other incorporation services i.e. cover the incorporation applications after the name gets approved.

These Incorporation services include:

  • Director Identification Number(DIN)

  • Issue of TAN and PAN

  • Mandatory issue of EPFO, ESIC Registration and Professional Tax Registration in Maharashtra.

  • Opening of Bank Account for the company

  • GSTIN allotment

Documents Required:

  • Articles of Association

  • Memorandum of Association

  • Declaration by the Proposed Directors and Subscribers

  • Identity proofs / Resident Proof of the Proposed Directors

  • Address of the Registered Office (Along with Utility bills not older than two months)

Important Note:-

  • Minimum Capital Contribution : There is no minimum capital amount, a Company should have an authorized capital of at least Rs.1 lakhs
  • Through the agreements / contracts the assets of the proprietorship can be converted for private limited company and debt owning to any creditor need to be settled first.
  • A new bank account under the name of Private Limited Company to be opened, all previous bank accounts of sole-proprietorship need to be closed.
  • Filing of Annual Returns in Form MGT-7 and Annual Financial accounts statement in Form AOC-4 along with Board Report, Auditor Report with the Registrar of Company every year is required to be filed by the Private Limited Company.

After due verification of the application and documents provided the concerned ROC grant the Certificate of Incorporation (COI), which is the proof of existence of the company, wherein the date of Incorporation, Company Identification Number(CIN) and Permanent Account Number(PAN) is mentioned with the seal of the registrar.

The Company can commence the Business activity once the Certificate of Incorporation is granted, this complete the process of Incorporation of a Company.

Advantages of conversion of Sole Proprietorship into Private Limited Company:-

  • Separate Legal Entity: A Private Limited Company has its existence separate from its directors and members being a legal entity, a juristic person established under the Act.

  • Taxation: Companies are required to pay Corporation tax on their taxable profits. There is a wider range of allowances and tax deductible costs that can be offset against company’s profits.

  • Borrowing capacity: there are better avenues for borrowing of funds for a company, it can issue debentures, secured as well as unsecured and banking and financial institutions prefer to render large financial assistance to the company and company enjoys avenues for borrowings of funds rather than sole proprietorship.

  • Limited Liability: In sole proprietorship owner own assets are at risk in even of any loss or failures, but in case of a company, if company in any event become insolvent or is wound up, only the assets of the company are used to clear the debts, the directors or shareholders of the company have no personal liabilities company being a separate legal entity.

Lex comply

Click here to read the disclaimer

Write a Comment