Converting Sole proprietorship to other Entity options
Sole proprietorship is the easiest form of business which some small businesses and startups choose to start with. By doing any one of the registrations that is Service tax registration/VAT or Small Scale Industry registration sole proprietorship is good to kick off. This has some drawbacks like unlimited liability of the proprietor, yet businesses take this as another part of the risk in their entrepreneurship journey.
As a business, it becomes difficult to manage and control all the business activities individually and sole proprietor chooses to convert it into another form of business structure. This blog is dedicated our beloved fans that have been requesting us to shoot a blog on this topic.
- Partnership firm:Sole proprietorship business can be converted into partnership. The Indian Partnership Act 1932, governs partnerships and it is optional whether to register or not with the registrar of Companies. The Registered firm enjoys additional benefits like protects its partners’ rights. With 2 partners, you should be good to register.
- Duly filled Specimen of Affidavit
- Certified copy of the Partnership deed
- Proof of ownership of the place of business or the rental/lease agreement
- Based on the Partnership deed, to open current bank account PAN card can be obtained based on Partnership deed.
- One person Company:The sole proprietor can convert his business to One Person Company as there is no need to induct any partner to incorporate One Person Company, it also empowers one person to manage and control all his business and on the other hand gives qualities of a company, like a separate legal entity. The individual will enjoy benefits like access to credits, bank loans, limited liability, legal protection for business, access to the market. One person company enjoys additional benefit like exemption from holding the annual general meeting, the annual return can be signed by director also and limited liability protection to directors and shareholder.
- Digital Signature Certificate [DSC] for the proposed Director
- Director Identification Number [DIN] for the proposed director.
- Written consent of nominee which need to be filed with the Registrar of Companies (RoC) during Incorporation.
- Memorandum of Association and Articles of Association [MOA & AOA]
- After incorporation of one person company, all assets, liabilities, and goodwill of the Sole proprietorship can be transferred through a transfer agreement to One Person Company.
- LLP: The sole proprietor can also choose to convert his business into Limited liability partnership. LLP has many features like private limited company. Further, LLP enjoys tax benefits and less annual compliance. This all the assets, liabilities, goodwill and losses will be transferred as it is to limited liability partnership.
- PAN Card of proposed partners
- Digital Signature of Partners
- Designated Partner Identification Number(DPIN)
- Address proof of partners
- LLP Partnership deed
- Private limited Company: More like Pvt Ltd company is acquiring the Sole proprietorship firm. 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.
- DSC of Directors
- Pan Card and address proof of Directors
- Director Identification Number of Directors
- Memorandum of Association (MOA) and Article of Association (AOA)
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