Starting a business as a Sole Proprietorship is a common practice by most of the people due to low compliance requirements. But with the increase in business and growth in income, there is a need to separate the bank accounts and the tax filings of the Sole Proprietor and that of the business. To accomplish this separation a possible solution is to convert the Sole Proprietorship into a Private Limited Company as it offers various benefits over proprietorship like limited liability, ability to attract equity capital, continued existence, etc.

Following are some requirements to be kept in mind while converting proprietorship into a private limited company:

• To convert a Sole Proprietorship into a Private Limited Company, an agreement has to be executed between the Proprietorship and the Private Limited Company (once it is incorporated) for the sale of the business. To convert a Sole Proprietorship into a Private Limited Company, an agreement has to be executed between the Proprietorship and the Private Limited Company (once it is incorporated) for the sale of the business.
• Further, such Private Limited Company so incorporated must have “the takeover of a Sole Proprietorship Concern” as one of the objectives in its Memorandum of Association.
• Transfer of all assets & liabilities to the private limited company.
• The sole proprietor as a member of the board of directors with at least 50% voting power.
• No benefit direct or indirect to sole proprietor other than by way of allotment of shares.
• Minimum 2 shareholders & 2 directors for private limited company.
• DIN for all directors.