Get to Know About the Steps of the GST Registration Process
29 Jul, 2024
In India, a lot of small business owners begin as sole proprietors. A private limited corporation is one that is owned exclusively by its shareholders. The amount of shares that each member of the company owns determines how much liability they have. Such a company's shares cannot be traded publicly. This article discusses all the crucial aspects of changing a single proprietorship into a private limited company.
Prior to the succession, all of the assets and liabilities of the sole proprietorship business were transferred to the new private limited company.
A minimum of two adults over the age of 18 are needed to form a private limited company, at least one of whom must be an Indian citizen and resident under the income tax legislation.
Section 47(xiv) states that if all of the requirements of section 47(xiv) are met, a transfer of capital assets from a sole proprietorship to a company upon conversion of the proprietorship into a private limited company is not regarded as a transfer under the provisions of the Income Tax Act. The cost of acquisition of the asset in the hands of the company would be the same as that in the hands of the sole proprietorship business for calculating capital gains on subsequent sales of such assets by the company.
The sole proprietorship's operations must end once the new private firm is established. A new corporate account must be opened for the Company, and the bank accounts held in the proprietary firm's name must be closed.
All business contracts and agreements that the proprietor previously signed must be re-signed in the name of the newly formed private limited company.
Only the face value of the shares they have purchased will be used to determine the degree of their culpability for the obligations of the company. As a result, when a corporation is limited by shares, the members' obligation upon a winding-up is just the unpaid balance on their shares.
A Pvt. Ltd. business is regarded as a distinct legal entity. In order to possess assets and enter into contracts with parties, a company might run a bank account under its own name. As a separate legal entity, the business can both sue and be sued in its own name.
The shareholder of a corporation may transfer their shares to anyone else. In comparison to selling a proprietary firm to a third party, the transfer is simple.
According to the Companies Act, a business may have a maximum of 200 shareholders, which makes raising capital money easier than it would be for a sole proprietorship.
A Sole Proprietorship cannot become a Private Limited Company unless an agreement on the sale of the business has been signed by the Proprietorship and the Private Limited Company (once it has been established). One of the goals of this Private Limited Company's Memorandum of Association shall be the acquisition of a Sole Proprietorship Concern.