Conversion of proprietory company into pvt limited company

RAJAPRASAD B (Querist) 05 March 2020 This query is : Resolved
Can you please advise for the procedure for conversion of proprietory company into Pvt Ltd company and how to transfer the immoveable assets of the firm to the company and stamp duty involved on this . Suppose the firm valued its business and raise good will before conversion, can it be carried forward?

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This discussion outlines the process for converting a sole proprietorship into a private limited company. Key steps include entering into an agreement, ensuring the Memorandum of Association covers the takeover, and transferring all business benefits and liabilities. The owner must become a director with significant voting rights, and the company needs a minimum share capital of Rs 1,00,000. Essential documents like ID proofs, authority letters, and specific MCA forms are required. While the Income Tax Act offers exemptions on capital gains under certain conditions, stamp duty on asset transfer, particularly for immovable property like land and buildings, is state-specific and generally applicable, requiring consultation with local legal experts for specific rates and procedures in states like Andhra Pradesh.

Raj Kumar Makkad (Expert) 05 March 2020
The owner ought to guarantee consistency with the accompanying necessities before starting the conversion of ownership into a private limited company:

An understanding must be gone into between the sole owner and the private limited company for the conversion.The Memorandum of Association (MOA) of the Private Limited Company ought to incorporate an entity that declares – “The takeover of a sole ownership concern”. All the benefits and liabilities of the sole ownership firm should be converted to the private limited company.

The sole owner ought to be a member of the organisation’s directorial board with a voting rule which comprises to in any event half of that of the organisation. It might be noticed that a private limited company must have at least two directors.The integration principles of a private limited company make it mandatory that the minimum share capital limit ought to be Rs 1,00,000.

Documents Required:

Conversion of sole proprietorship into private limited company need of the following documents:

1. Basic ID and Address proof of the firm’s directors.
2. Letter of Authority/Power of Attorney.
3. Testimony of registered office address can be presented in the form of a copy of the electricity bill, rent agreement, sale deed and so forth. The concerned person needs to provide Form 1, Form 18 and Form 32.
4. The documents and forms referenced here ought to be uploaded on the official website of the Ministry of Corporate Affairs (MCA).Declaration of Incorporation

After furnishing all the necessary processes indicated above, the MCA approves the stipulated fulfilment necessities. In case the directing body thinks that it’s attractive, the asset will be furnished with a Certificate of Incorporation, which adequately brings forth new private limited company.

Rajendra K Goyal (Expert) 16 March 2020
Get the Company incorporated if not already incorporated first. The expert has given the procedure, may proceed accordingly.

It is advisable to take help of your CA or Lawyer expert in Company affairs.

T. Kalaiselvan, Advocate (Expert) 21 March 2020
Conversion of a sole proprietorship into a private limited company entails a “transfer” within the meaning of the Income Tax Act, 1961, as amended (Income Tax Act). ... However, there is a provision under section 47(xiv) of the Income Tax Act, which lays down certain conditions for exemption from any capital gains.
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
Sole proprietorship can be acquired by the private limited company by simply signing an agreement between the sole proprietor and the private limited company (after its incorporation) mentioning that all assets, goodwill, liabilities are transferred to the private limited company.
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.
It may be noted that a private limited company must have a minimum of two directors. The incorporation rules of a private limited company mandate the minimum share capital requirement to be Rs 1,00,000

T. Kalaiselvan, Advocate (Expert) 21 March 2020
It may be noted that a private limited company must have a minimum of two directors.
Documents Required

Conversion of sole proprietorship into private limited company need of the following documents:

Basic ID and Address proof of the firm’s directors.
Letter of Authority/Power of Attorney.
Testimony of registered office address can be presented in the form of a copy of the electricity bill, rent agreement, sale deed and so forth.
The concerned person needs to provide Form 1, Form 18 and Form 32. The documents and forms referenced here ought to be uploaded on the official website of the Ministry of Corporate Affairs (MCA).

T. Kalaiselvan, Advocate (Expert) 21 March 2020
Declaration of Incorporation

After furnishing all the necessary processes indicated above, the MCA approves the stipulated fulfilment necessities. In case the directing body thinks that it’s attractive, the asset will be furnished with a Certificate of Incorporation, which adequately brings forth new private limited company.

Working capital is needed by companies to continue with their operations and banks assess the requirements of the borrowers using some techniques.

PAN is mandatory for obtaining registration.The Proprietor’s PAN can be used in case of proprietorship. An LLP, Trust, Company etc should apply for PAN first for GST registration.Foreigners need not have one

RAJAPRASAD B (Querist) 21 March 2020
Thank you all for your valuable advices. I got the clarity for converting proprietary concern into private limited company.
Need clarity on stamp duty, if any involved. As per advices it comes under the definition of "transfer " under Income Tax Act duly complying the conditions to get exemption for capital gains tax. However, how the Land & Building get transferred to the company? they will also get transferred along with other assets? No need to approach sub-registrar office? What is the procedure for the mutation of Land & Building properties in the name of the company in the state of Andhra Pradesh? Any stamp duty is involved? I am grateful if anyone can clarify.

Rajendra K Goyal (Expert) 21 March 2020
Stamp duty is state issue, independant from Income Tax provisions.
You have not mentioned your State?
You should contact local lawyer for the same.

RAJAPRASAD B (Querist) 21 March 2020
It's Andhra Pradesh. Basically my doubt is whether stamp duty will come into picture or not.

Raj Kumar Makkad (Expert) 22 March 2020
Stamp duty is duly attracted. There is no chance of any exemption.

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