Conversion of a proprietorship into a private limited company
A proprietary business may be converted into a company or a partnership firm may be converted into a company. A company is incorporated by making the sole proprietor as one of the subscribers to the Memorandum i.e. he becomes the first member. In case of partnership firm all the partners become subscribers to the Memorandum of the new company. Or, the new company which is incorporated takes over the sole proprietorship or the partnership firm. There must be specific provision in the Memorandum of the new company for taking over other business as one of its objects and powers must be given to the Board of Directors by the Articles of the new company, to enter into agreements for acquisition of business.
Steps involved in the conversion of proprietorship or partnership into a private limited company.
The first step will be incorporation of a new company with the required provisions in the Memorandum and the Articles.
A resolution to acquire the other business shall be passed at a General Meeting requesting the Board of Directors to do the needful.
The Board of Directors shall enter into an agreement with the firm for its acquisition.
A copy of the agreement shall be filed with the Registrar within 30 days.
Shares have to be allotted by the Board of Directors to the partners of the firm so acquired (if it is a partnership firm) according to the terms of agreement.
A return of such allotment has to be filed with the Registrar within 30 days to complete the registration.
