PROPRIETORSHIP TO PRIVATE COMPANY IN INDIA 2022
Most businessmen in India usually start their business as a sole proprietorship due to the low requirements of compliance. After a few years when the business grows and the revenue increases it is usually advisable to convert a sole proprietorship into a private company.
When a sole proprietorship is converted to a private company in india. the new firm becomes a separate legal entity which reduces the risk of liability of the owner. This also safeguards the personal assets of the owner except in the case of fraud. A private limited company is governed under the companies act, 2013, and the shares of this company are not offered to the public. The structure of taxation is unique under the income tax Act 1961, and is different from a sole proprietorship wherein the income is considered as individual income.
BENEFITS OF A PRIVATE COMPANY IN INDIA 2022
- A registered private company increases the authenticity of an individual’s business.
- A private company protects the business owner from personal risks and losses.
- A private company helps to widen the customer base.
- A private company helps to procure bank credit, investments from reliable investors with relative ease.
- A private company offers liability protection to protect a business owner’s company assets
- It helps to generate larger capital contribution and offers more stability
- A private company increases the potential of the business to expand
- The shareholders get a right to appoint the directors on behalf of the business owner.
- Unlike a sole proprietor firm even after the death of the directors or shareholders a private company can exist without any issues.
- The shareholders and the directors of a private company get complete immunity from being sued by any third party except in the case of personal issues.
- A private company attracts lower tax rates and subsidies under the Income Tax Act, 1961.
- The profit of a private limited company is subject to a tax rate of 30% + surcharge & cesses as applicable.
REQUIREMENTS NEEDED TO REGISTER A PRIVATE COMPANY
As per the norms of the Company Act, 2013, to incorporate any private registered company in India, the below mentioned points have to be met.
- A private limited company must have at least two directors and a maximum of 15. At least one of the directors must be an Indian resident.
- The name of your business must be unique and shouldn’t be similar to any existing company name or trademark.
- While there is no minimum capital amount requirement for a private company it should still have an authorized capital of at least INR 1 lakh.
- The registered office of a company need not be a commercial premise. A rented place can also be the registered office, as long as a no objection certificate (NOC) is obtained from the landlord.
- In the objective clause of Memorandum Of Association (MOA), there should be a phrase present which states “The takeover or acquisition of a sole proprietorship concern”
- The private limited company should file an annual financial accounts statement and annual returns with the registrar of the company every year.
After the incorporation of a new private limited company, all the assets and liabilities of the old sole proprietorship are completely transferred to the new company. However even after the conversion, the old sole proprietorship still holds 50% of shares in the new private limited company. This means that 50% of the voting rights are held by a sole proprietorship. The old sole proprietor will hold these shares for a minimum period of 5 years from the date of incorporation of the new private limited company. Similarly, there won’t be any monetary consideration between a sole proprietorship and private limited company as this was just a conversion and there was no sale involved.
PROCEDURE FOR REGISTRATION
- Application has to be made for DSC (Digital Signature Certificate).
- Application has to made for the DIN (Director Identification Number).
- Application has to be made for the name availability.
- The filing of the EMOA and EAOA has to made to register a private limited company.
- Application has to made for the PAN and TAN of the company.
- A certificate of incorporation has to be issued by the ROC with PAN and TAN.
- A current bank account has to be opened in the company name.
DOCUMENTS NEEDED FOR ONLINE REGISTRATION OF THE COMPANY
A private limited company registration is not possible without proper identity proof and address proof. The identity and address proof of all the directors and the shareholders of the company is needed for this company to be incorporated. The documents that are required by MCA for the online company registration process are as follows:
- A scanned copy of PAN Card or Passport (Foreign Nationals & NRIs).
- A scanned copy of Voter’s ID/Passport/Driver’s License.
- The scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill.
- A scanned passport-sized photograph specimen signature of the directors.
- For a foreign national, an apostilled or notarized copy of the passport has to be submitted mandatorily.
- Residence proof documents like a bank statement or the electricity bill should be less than 2 months old.
- For online company registration in India, the company must have a registered office in India. To prove admittance to the registered office, the most recent copy of an electricity bill or the property tax receipt or water bill must be filed. Along with the rental agreement, a utility bill/or the sale deed and a letter from the landlord with her/his consent to use the office as a registered office of the company should be filed.
- A scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill.
- A scanned copy of the notarized rental agreement in English.
- A scanned copy of no-objection certificate from the property owner.
- A scanned copy of sale deed/property deed in English (in case of owned property).
E-FORM SPICE 32
An E-Form Spice 32 is the incorporation e-form which is provided at the final stage of the incorporation of the said company. Here, all the necessary details should be filled in this form and submitted along with the mandatory documents.
10-JUN-20: REGISTERING A PLC IN THE MCA PORTAL HAS NOW BECOME EASIER.
As a sole proprietorship business flourishes, it looks to convert itself into a private limited company to extract the inherent benefits. The Government has now facilitated the registration of new PLCs on the MCA portal. Now, registration under GST, EPFO, ESIC and Professional Tax can be done on the MCA portal, while incorporating the company itself. However, the entities will need to comply with the provisions of GST Act, ESI Act and MP Act.
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Our team of tax and legal experts at ACE ALLIANCE will help you avail the (DSC) Digital Signature Certificate and (DPIN) Designated Partner Identification Number required for the sole proprietor and new director. Our team will also help you file your application along with the mandatory documents and also assist you with any post conversion formalities and compliances.