you must follow a structured legal procedure based on the Companies Act, 2013, and other applicable laws. Here’s a step-by-step guide:
Step-by-Step Conversion Process
1.Incorporate a New Private Limited Company
- Obtain Digital Signature Certificates (DSC) and Director Identification Numbers (DIN) for all proposed directors.
- Name Approval: Apply for company name reservation via the RUN/Spice+ web form on the MCA portal.
- Draft MOA & AOA: Include a clause in the MOA stating the takeover/acquisition of the proprietorship business.
- Filing for Incorporation: Submit Form Spice+ along with MOA, AOA, KYC, and other documents.
2. Takeover of Proprietorship Business
- The new company, after incorporation, can take over the assets, liabilities, goodwill, and business of the proprietor through an agreement.
- The company's first board meeting can approve this takeover.
3. Execute a Business Transfer Agreement
- Execute a detailed Slump Sale Agreement or an Asset Transfer Agreement between the proprietor and the company mentioning:
- Handover of all assets and liabilities
- Valuation details (ideally by a CA)
- Modes of consideration (cash, shares, etc.)
4. Issuing Shares to the Proprietor
- Company can issue shares (equity) to the proprietor in exchange for the business transferred (other shareholders may also subscribe as required for minimum 2 shareholders).
5. Intimate the Authorities/Update Registrations
- GST Registration: Surrender/amend the GST registration of the proprietorship and obtain new GSTIN in the company’s name.
- MSME Registration: Apply afresh in the company’s name.
- PAN, TAN, and Bank Account: Apply for those in company’s name.
- Shops & Establishment, Trade License, etc.: Update all local registrations.
6. Disclosure & Intimation
- Intimate all vendors, creditors, and customers about the change in business constitution.
- Update all important contracts and agreements mentioning the new company as the entity.
Key Points to Remember
- Compliances: Meet minimum requirements for a pvt. ltd. company:
- At least 2 shareholders and 2 directors (directors can be the same persons)
- Registered office in India
- Tax Implications: There may be capital gains, stamp duty, or other tax consequences; consult a tax advisor.
- Transfer of Assets: Transfer immovable property and contracts by executing supplemental agreements as required.
Registrations and Fees
- Company Registration Fees: Varies based on authorized share capital and state. Typically Rs. 7,000 to Rs. 15,000+ (excluding professional fees).
- GST Registration: Free on the government portal.
- MSME Registration: Free on the Udyam portal.
Documents Required
- PAN card, Aadhar card of directors/shareholders
- Proof of registered office (rent agreement/utility bill)
- NOC from property owner
- Bank statements
- Proprietorship’s assets & liabilities statement
Consult a qualified CA/CS for seamless compliance.
This process is applicable to most states in India, individual state laws may entail additional steps.
