18 September 2010
Conversion of a Proprietorship firm into a Company (Private/Public)
Small is beautiful but a small unincorporated organization led by an Individual cannot assume growth on large scale without corporatising itself. Conversion of a Proprietorship firm into a Company is known as Corporatisation. Corporatisation has its own advantages such as Limited Liability, Perpetual Succession, Transferability of shares, easy access to funds etc.
Key Benefits:
Automatic Transfer All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the company.
No Stamp Duty All movable and immovable properties of the firm automatically vest in the Company. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.
No Capital Gain Tax No Capital Gains tax shall be charged on transfer of property from Proprietorship firm to Company.
Continuation of Brand Value The goodwill of the Proprietorship firm and its brand value is kept intact and continues to enjoy the previous success story with a better legal recognition.
Carry Forward and Set off Losses and Unabsorbed Depreciation The accumulated loss and unabsorbed depreciation of Proprietorship firm is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company.
Key Conditions:
The Proprietor receives consideration only by way of allotment of shares in company and
The Proprietor share holding in the company in aggregate is 50% or more of its total voting power and continue to be as such for 5 years from the date of conversion.
Key Requirements:
Shop Act Licence or Equivalent licence/NoC issued by the Gram Panchayat
Minimum Share Capital shall be Rs. 100,000 (INR One Lac) for conversion into a Private Limited Co.
Minimum Share Capital shall be Rs. 500,000 (INR five Lac) for conversion into a Public Limited Co.
Minimum 2 Directors (for Private Limited Co.) and 3 Directors (for Public Limited Co.)
The directors and shareholders can be same person
DIN (Director Identification Number) for all the Directors
DSC (Digital Signature Certificate) for one of the Directors
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