PROPRIETORSHIP CONCERN INTO PRIVATE/PUBLIC COMPANY
Small is beautiful but a small unincorporated organization led by an Individual cannot assume growth on large scale without corporatizing itself. Conversion of a Proprietorship concern into a Company is known as Corporatization. Corporatization has its own advantages such as Limited Liability, Perpetual Succession, Transferability of shares, easy access to funds etc.
Here are the key benefits that business can enjoy by converting into a private or public limited company:
• Automatic Transfer: All the assets and liabilities of the proprietorship are transferred to the company with immediate effect.
• No Stamp Duty: On Conversion of proprietorship to a limited company all the movable and immovable properties of the proprietorship concern automatically vests to the company. No instrument of transfer is to be executed and hence no stamp duty is to be paid.
• No Capital Gain Tax: During conversion of proprietorship concern, there are no capital gains taxes to be paid on transfer of property from proprietorship concern to Limited Company.
• Continuation of Brand Value: The newly formed limited company retains all assets including trademarks and copyrights of the original proprietorship concern. Therefore, the brand value and its goodwill continue to be the same. Now the only difference is that the brand has better legal recognition.
• Carry Forward and Set off Losses and Unabsorbed Depreciation: The accumulated loss and unabsorbed depreciation of proprietorship concern is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company.
Here are the most important conditions that a business has to adhere to during conversion of proprietorship concern to a limited company.
• The consideration for transfer is by way of Allotment of shares to the proprietor in the new company.
• In the newly formed public or private company, the aggregate of shares of the proprietor should be 50% or more of its total voting power and continue to be as such for 5 years from the date of conversion to a limited company.
There are certain requirements that need to be met before conversion of proprietorship concern to a limited company. These are:
• Shop & Commercial Establishment Act Licence or Equivalent licence/ NoC issued by the Gram Panchayat.
• The share capital should be at least Rs. 100,000/- (One Lakh Only) before it can consider conversion to a private limited company
• The share capital should be at least Rs. 500,000/- (Five Lakh Only) before it can consider conversion to a public limited company
• There should be a minimum of 2 shareholders, and 2 directors for conversion to a private limited company
• There should be a minimum of 7 shareholders, and 3 directors for conversion to a public limited company
• The directors and shareholders can be the same persons
• All the directors should have a Director Identification Number (DIN)
• The directors should procure Digital Signature Certificates (DSC)
There are many steps involved in converting one form of business to another. SunShine Corporate Solutions has been able to help business make a smooth transition and maintain efficiency of operations. Our experts have experience in the legal, financial and bureaucratic work required to complete the conversion of a business. Please contact us in order to learn more about what you need to transform your business into a fast growing company with brilliant prospects.