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Conversion from Proprietorship to Private Limited Company
Initially, when a business is established, the foremost preferred choice may be a sole proprietorship structure due to its low compliance requirements. Once the business grows, it’s essential to require steps to limit the liabilities and reduce the burden of compliance on one person. the simplest answer up here is to convert proprietorship to non-public Ltd. For the aim of conversion of the sole proprietor to a personal Ltd., it’s necessary by the promoters of the corporate to indulge in an agreement which is to be made for selling the business. Further, such conversion from a sole proprietorship to non-public Ltd. must have clearly mentioned about “the takeover of a Sole Proprietorship Concern” together of the objectives in its Memorandum of Association.
Benefits of conversion from Sole Proprietorship to Private Limited Company
- Separate Legal Existence: The private Ltd. may be a separate legal entity, and its existence is to break away its members This makes the business possible to have assets and enter into contracts within the name of the private Ltd. or sue a 3rd party just in case of a dispute. The members (Shareholders/Directors) of a corporation haven’t any personal liability to the creditors of a corporation for the company’s debts beyond their holding within the company.
- Limited Liability of Directors: In a private Ltd., the private assets of the directors remain untouched if there are any outstanding debts on the corporate. Only the cash invested for incorporation or the assets of the corporate is to be sold off for paying off the dues.
- Easy Transferability: The ownership of the business is often transferred to a private or to a corporation by transferring the shares with the consent of shareholders. This transfer is far easier whereas in proprietorship such transfer isn’t allowed.
- Uninterrupted Existence: A private Ltd. may be a separate legal entity and hence it’s perpetual succession. Unlike a sole proprietorship, it’s unaffected by the death or other departure of any member. It continues to be alive regardless of the changes in membership.