In India, a lot of small business owners begin as sole proprietors. A private limited corporation is one that is owned exclusively by its shareholders. The amount of shares that each member of the company owns determines how much liability they have. Such a company's shares cannot be traded publicly. This article discusses all the crucial aspects of changing a single proprietorship into a private limited company.

Conditions of Sole Proprietorship Conversion to Private Limited Company
 

• Prior to the succession, all of the assets and liabilities of the sole proprietorship business were transferred to the new private limited company.

• The proprietor's stock in the new business must represent at least 50% of the entire voting power, and it must remain in place for five years following the succession.
• Other than the allocation of shares in the new firm, the proprietor does not receive any other profit or consideration, directly or indirectly, in any way.
• The major aim clause of the MOA for the Private Limited Company states, "Takeover of a sole proprietorship business by the new company.

Procedure for Conversion of Proprietorship business into Private Limited Company
 

A minimum of two adults over the age of 18 are needed to form a private limited company, at least one of whom must be an Indian citizen and resident under the income tax legislation.

How to convert a proprietorship into a Private Limited Corporation
 

• A minimum of two adults over the age of 18 are needed to form a private limited company, at least one of whom must be an Indian citizen and resident under the income tax legislation.
   
• For each of the new company's directors and shareholders, request a digital signature certificate.
   
• By submitting a RUN Test application for name reservation with the Registrar of Companies, you can reserve the company name online.
   
• After the name reservation has been approved, you must submit an electronic application using MCA Portal. (SPICePartB with AGILE PRO, SPICeINC9, SPICeMOA, and SPICeAOA). The main goal clause of the Private Limited Company's Memorandum of Association (MOA) must state "Takeover of a sole proprietorship business by the new company."
   
• Forming a Private Limited Company and obtaining the incorporation certificate normally takes 3 to 4 days. The proof of a company's creation is its certificate of incorporation. Additionally, it contains the company's name, incorporation date, registration address, and CIN number.
   
• It is important to create a current account in the company's name with any Indian bank after the company has been incorporated. Only the company's current account should be used for all business transactions.
• The transfer of the proprietorship's business assets and liabilities to the new Company requires the execution of a contract between the Proprietor and the Company. The agreement must include all of the assets, liabilities, and payments made in exchange for those assets. To be a legitimate legal document, the agreement must be signed on stamp paper with the appropriate stamp duty.

Capital Gain on Conversion 
 

Section 47(xiv) states that if all of the requirements of section 47(xiv) are met, a transfer of capital assets from a sole proprietorship to a company upon conversion of the proprietorship into a private limited company is not regarded as a transfer under the provisions of the Income Tax Act. The cost of acquisition of the asset in the hands of the company would be the same as that in the hands of the sole proprietorship business for calculating capital gains on subsequent sales of such assets by the company.

Terminate Sole Proprietorship
 

The sole proprietorship's operations must end once the new private firm is established. A new corporate account must be opened for the Company, and the bank accounts held in the proprietary firm's name must be closed.

Revision of Contracts/ Agreements
 

All business contracts and agreements that the proprietor previously signed must be re-signed in the name of the newly formed private limited company.

Advantages of Conversion
 

Limited Liability
 

Only the face value of the shares they have purchased will be used to determine the degree of their culpability for the obligations of the company. As a result, when a corporation is limited by shares, the members' obligation upon a winding-up is just the unpaid balance on their shares.

Separate Legal Entity
 

A Pvt. Ltd. business is regarded as a distinct legal entity. In order to possess assets and enter into contracts with parties, a company might run a bank account under its own name. As a separate legal entity, the business can both sue and be sued in its own name.

Easy Transferability of Shares
 

The shareholder of a corporation may transfer their shares to anyone else. In comparison to selling a proprietary firm to a third party, the transfer is simple.

Easy Fund Raising
 

According to the Companies Act, a business may have a maximum of 200 shareholders, which makes raising capital money easier than it would be for a sole proprietorship.

Conclusion: 
 

A Sole Proprietorship cannot become a Private Limited Company unless an agreement on the sale of the business has been signed by the Proprietorship and the Private Limited Company (once it has been established). One of the goals of this Private Limited Company's Memorandum of Association shall be the acquisition of a Sole Proprietorship Concern.