Convert a proprietor company to private ltd. company
SANJAY SINGH
(Querist) 20 November 2019
This query is : Resolved
Can I convert a Proprietor Company to Private Ltd. Company and use the Experience of Proprietor Company ? [Executed Work Order/Supply Order, Financial Position (Balance Sheet/ Profit & Loss Account etc.)] of Proprietorship Company in Private Ltd. Company as Credential for getting New Work Orders/Supply Orders for Converted Private Ltd. Company as Experience under following situations? 1. The Chairman of the Private Ltd. Company is the Proprietorship in Proprietorship Company.
This question is in reference to the judgement of New Horizons Limited Vs. Union of India (1995) 1 SCC 478
Paragraph 23 of New Horizon Limited reads as under:
Quote:
23. Even if it be assumed that the requirement regarding experience as set out in the advertisement dated 22-4-1993 inviting tenders is a condition about eligibility for consideration of the tender, though we find no basis for the same, the said requirement regarding experience cannot be construed to mean that the said experience should be of the tenderer in his name only. It is possible to visualize a situation where a person having past experience has entered into a partnership and the tender has been submitted in the name of the partnership firm, which may not have any past experience in its own name. That does not mean that the earlier experience of one of the partners of the firm cannot be taken into consideration. Similarly, a company incorporated under the Companies Act having past experience may undergo reorganization as a result of merger or amalgamation with another company, which may have no such past experience, and the tender is submitted in the name of the reorganized company. It could not be the purport of the requirement about experience that the experience of the company, which has merged into the reorganized company, cannot be taken into consideration because the tender has not been submitted in its name and has been submitted in the name of the reorganized company, which does not have experience in its name. Conversely, there may be a split in a company and persons looking after a particular field of the business of the company form a new company after leaving it. The new company, though having persons with experience in the field, has no experience in its name while the original company having experience in its name lacks persons with experience. The requirement regarding experience does not mean that the offer of the original company must be considered because it has experience in its name though it does not have experienced persons with it and ignore the offer of the new company because it does not have experience in its name though it has persons having experience in the field. While considering the requirement regarding experience it has to be borne in mind that the said requirement is contained in a document inviting offers for a commercial transaction. The terms and conditions of such a document have to be construed from the standpoint of a prudent businessman. When a businessman enters into a contract where under some work is to be performed he seeks to assure himself about the credentials of the person who is to be entrusted with the performance of the work. Such credentials are to be examined from a commercial point of view which means that if the contract is to be entered with a company he will look into the background of the company and the persons who are in control of the same and their capacity to execute the work. He would go not by the name of the company but by the persons behind the company. While keeping in view the past experience he would also take note of the present state of affairs and the equipment and resources at the disposal of the company.
Unquote:
Thanks.
KISHAN DUTT KALASKAR
(Expert) 20 November 2019
Dear Sir,
You can convert your proprietorship company into private limited company in respect of your other doubts you may please discuss with any chartered accountant.
SANJAY SINGH
(Querist) 20 November 2019
Sir, my question is regarding using of experience of Proprietorship company ?
Sb Karma
(Expert) 21 November 2019
Yes you can
for details please go through following-----
Conversion of Proprietorship into Private Limited>>>
As a business grows, the demands of business and the drawbacks of a proprietorship firm could force an entrepreneur to start the process for conversion of proprietorship into private limited company. A private limited company offers significant advantages over the proprietorship form of business, including that of limited liability, ability to attract equity capital, continued existence and more. In this article, we look at the requirement and procedure for conversion of proprietorship into a private limited company.
Proprietorship vs Private Limited Company>>>>
A private limited company offers a lot of advantages over the sole proprietorship form of business. We have listed a few of them below:
A sole proprietor would be incurred with unlimited liabilities for any losses incurred, which means that he/she will be required to pay personally for any losses incurred by the firm. The regulation of a private limited company makes a distinction between the owner and the entity, thereby making his/her liabilities limited.
Sole proprietors will be taxed on their personal income tax rate, which isn’t the case with a private limited entity. Know more about income tax rate for companies.
Sole proprietorship firms are not vested with adequate fund-raising options, in contrast to a private limited entity.
The demise of a sole proprietor would lead to the closure of the firm, whereas a private limited Company facilitates the legal heirs to rightfully take over the affairs of the business.
Requirements for Conversion>>>>
The proprietor should ensure compliance with the following requirements before beginning the conversion of proprietorship into company:
An agreement must be entered into between the sole proprietor and the private limited company for conversion. Know more about slump sale agreement.
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.
Initiating the Process of Conversion>>>
A sole proprietorship can be converted if the above-mentioned conditions are met. Talking about the conversion process, the following measures must be initiated by an entrepreneur to get the proprietorship firm converted into a private company:
Obtaining the Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the sole proprietor and new director.
Acquiring permission for naming the company, the application for which must be made in Form-1. Click here to check company name availability.
Apply to MCA for incorporation of company.
Completing the slump sale formalities.
Modifying details of the bank account in accordance with the conversion.
Submitting the relevant documents and forms (covered separately).
Documents Required>>>>
Conversion of an entity prompts the need of the following documents:
Basic ID and Address proof of the directors.
Letter of Authority/POA.
Proof of registered office address, which could be a copy of the utility bill, rent agreement, sale deed and the likes of it.
With respect to forms, the concerned person needs to furnish form 1, Form 18 and form 32. The documents and forms mentioned here should be uploaded on the website of the Ministry of Corporate Affairs (MCA).
Certificate of Incorporation>>>
After the completion of all the procedures specified above, the MCA validates the prescribed compliance requirements. If the administering body finds it satisfactory, the entity will be provided with a Certificate of Incorporation, which effectively gives birth to a new private limited company.
