Requirements for Conversion
- An agreement must be entered into between the sole proprietor and the private limited company for conversion.
- The Memorandum of Association (MOA) of the Private Limited Company must include an object that states – “The takeover of a sole proprietorship concern”.
- All the assets and liabilities of the sole proprietorship firm must be transferred to the private limited company.
- The sole proprietor should be a part of the company’s 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.
- The incorporation rules of a private limited company mandate the minimum share capital requirement to be Rs 1,00,000.
After the completion of all the specified procedures, the MCA validates the prescribed compliance requirements. If MCA finds it satisfactory, the entity will be provided with a Certificate of Incorporation, which effectively starts a new private limited company.