Proprietorship to Private Limited Company

Proprietorship to Private Limited Company

A private limited company offers significant advantages over the proprietorship form of business, including that of limited liability, ability to attract equity capital, continued existence and more. In this article, we look at the requirement and procedure for conversion of 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 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.

Requirements for Conversion

1) An agreement must be entered into between the sole proprietor and the private limited company for conversion. Know more about slump sale agreement.

2) The Memorandum of Association (MOA) of the Private Limited Company must include an object that states The takeover of a sole proprietorship concern.

3) All the assets and liabilities of the sole proprietorship firm must be transferred to the private limited company.

4) The sole proprietor should be a part of the companys directorial board with a voting power which constitutes to at-least 50% of that of the company. It may be noted that a private limited company must have a minimum of two directors.

5) The incorporation rules of a private limited company mandate the minimum share capital requirement to be Rs 1,00,000.

Initiating the Process of Conversion

1) Obtaining the Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the sole proprietor and new director.

2) Acquiring permission for naming the company, the application for which must be made in Form

a) Click here to check company name availability.

3) Apply to MCA for incorporation of company.

4) Completing the slump sale formalities.

5) Modifying details of the bank account in accordance with the conversion.

6) Submitting the relevant documents and forms (covered separately).

Documents Required

1) Basic ID and Address proof of the directors.

2) Letter of Authority/POA.

3) Proof of registered office address, which could be a copy of the utility bill, rent agreement, sale deed and the likes of it.

With respect to forms, the concerned person needs to furnish form 1, Form 18 and form 32. The documents and forms mentioned here should be uploaded on the website of the Ministry of Corporate Affairs (MCA).

The conditions are:

1) All the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company;

2) The shareholding of the sole proprietor in the company is not less than fifty per cent (50%) of the total voting rights in the company and such shareholding continues to so remain as such for a period of five years from the date of the succession; and

3) The sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company;

With respect to forms, the concerned person needs to furnish form 1, Form 18 and form 32. The documents and forms mentioned here should be uploaded on the website of the Ministry of Corporate Affairs (MCA).


1) Separate legal entity

2) Limited Liability

3) Getting funds for your business will become easier.

The company will bear the losses and not you.

If you have a start-up business, you may be able to get various benefits that government provides for start-ups


1) Timeline to Convert Sole-Proprietorship to Company

The process of conversion usually takes around 35-40 days. This includes the time it takes to obtain DSC and DIN for the directors.

2) Fees to Convert Sole-Proprietorship to Company.

The fee depends on the type and share capital of the company and starts from Rs. 2000. It further goes up with the amount of share capital. Please note that this fee does not include the fee for DIN or DSC and there is a separate government fee for both of them.