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Business Registrations Articles
Conversion Proprietorship to Private Limited Company

Proprietorship firm also known as the sole proprietorship firm is the business structure that is controlled and managed by a single owner. Thus, the legal identity of the sole owner and the business are considered as one and the same. This form of business structure is most suitable for the small businesses with less capital investment. One of the major drawbacks of this type of business structure is that the liability of the sole owner is unlimited.

On the other hand, the private limited company is the most preferred form of business structure for the startups.  The private limited company is a privately held business that is incorporated by minimum 2 members.  One of the most crucial benefits of the private limited company over proprietorship is that the private limited company limits the liability of the members to their share only and provides them a legal protection.

Many entrepreneurs generally start their business as sole proprietorship due to lesser compliance requirements. However as the business and the revenues of the company grow, there is a need to separate the bank accounts and the tax filings of the sole proprietor and that of the business. Due to these reasons the sole proprietorship firm covert themselves into the private limited company.

In this article, we have discussed the procedure of converting Proprietorship firm into the private limited company.

Conditions to be fulfilled

For converting Sole Proprietorship firm to Private Limited Company following conditions are required to be fulfilled otherwise the conversion cannot be carried-

  1. Prior to the conversion all the assets and the liability of the Sole Proprietors concern relating to the business become the assets and the liability of the company.
  2. In the new private limited company formed the shareholding of the sole proprietor is not less than 50% of the total voting power in the company. Moreover, his shareholding continues to remain so for a time period of 5 years from the date of the succession.
  3. No benefit is enjoyed by the sole proprietor directly or indirectly, in any form or manner, other than by way of allotment of shares in the company.


The Board of Directors shall enter into an agreement with the firm for its acquisition. Shares have to be allotted by the Board of Directors to the sole proprietor according to the terms of the agreement.

The sale of the business agreement must be executed in order to convert a sole proprietorship concern into a private limited company. One of the requirements for such conversion into the private limited company is that the memorandum of association of proprietorship must have “the takeover of a sole proprietorship concern” as one of the objects.

To effect the conversion the desired private limited company must be formed reflecting that the company is to take over the business of the sole proprietorship.

Further, all the assets and liabilities of the sole proprietary concern relating to the business must be transferred to newly form the private limited company.

Finally, the sole proprietorship is to be terminated and ACRA is to be informed that you have ceased to carry on business as a sole proprietorship now.

Accepting Deposit in a Private Limited Company

The private limited company is the privately held small business which is incorporated with minimum two members. With effect from August 2015, the private limited companies were prohibited from accepting any amount of money as the deposits. The question which arises here is what can be termed as the deposits? According to section 2(31) of companies act the deposit can be termed as any amount of money received by way of deposit or loan or in any other form by a company but does not include such categories of the amount as may be prescribed in consultation with the Reserve Bank of India.

Let us try to understand that whether the private limited company can accept the money received in the below stated cases or not-

  1. Loan received from Directors- Yes the private limited company is empowered to receive money from directors. Any amount of money received from the Directors of the Company will not be termed as deposits, provided that the Director submits a declaration to the Company in writing that the amount is not being given out of funds acquired by him/her by borrowing or accepting loans or deposits from others.
  2. Money received from proprietorship firm- The money received from proprietorship firms by the private limited company are considered as deposits thus the private limited company is not empowered to accept any money from the proprietorship firm.
  3. Money received from the relative of directors- The amount of money received from the relative of directors are not considered as deposits when a declaration in writing is given stating that the money granted by him is not given out of borrowed funds and the company will disclose it in the Board's report. Thus the company can accept deposits from the relative of the director.
  4. Money received from Partnership firm- The partnership firm cannot be a member, director or relative of the director of the private limited company. Thus the private limited company is not empowered to take any loan amount of money from partnership firm.
  5. Money received from Employee- The private limited company is empowered to accept deposits from its employees as the non- interest bearing security deposit. However, it can accept such deposit only up to the amount of the annual salary of the employee.
  6. Money received from the bank- The amount received by the private limited company from any bank or financial institution as a bank loan or the credit facility cannot be termed as the deposit. Thus it can be accepted by the private limited companies.
  7. Money received from trust- The private limited company can accept the money from the trust provided the amount received does not bear any interest.
  8. Money received as inter-corporate loans- Any amount of money received by a private company as the inter-corporate loan cannot be termed as deposits thus it can be accepted by the company.
  9. Advance received in the ordinary course of business- Any amount of money received by the private limited company in the ordinary course of business cannot be regarded as the deposit thus it can be accepted by the company.
  10. Money received for share application-The money received by the private limited company and held for the subscription of securities or the advance allotment of securities is not treated as deposits. One condition required to be fulfilled here is that the amount of share application money with the company must only be to the extent of allotment and within 2 months.
How to Register Private Limited Company in India

A Private Limited Company is a privately held structure most suitable for small businesses. Minimum two members are required for forming a Private limited company who can act as the directors and the shareholders as well. This type of business entity limits owner liability to their shareholdings, the number of shareholders to 50, and restricts shareholders from publicly trading shares. Below we have listed out some of the major benefits associated with the private limited companies-

  1. Separate legal identity- One of the crucial features of this form of company is the distinct legal identity of the company from its members. Companies act 2013 recognizes the private limited company as the separate legal identity from its members. Due to this feature, the private limited company is empowered to own property under its name. Further, the company can sue and also it can be sued under its own name due to this very same feature.
  2. Limit on the liability of members- Unlike many other forms of companies, the liability of members of the private limited company is limited to their only. Thus the personal assets of the members are secured from any charge.
  3. Tax benefits- Private limited company pay taxes on their profits and not on their income. Thus the tax liability is lesser as compared to other forms of companies.
  4. Perpetual Succession- As the legal identity of the private limited company is separate from its members the life of the company does not get affected by the life of members. Thus the death or inability of the members does not end the life of the company.
  5. Ease in Foreign direct investment- The Private limited company is the sole business structure that permits 100% foreign direct investment. This implies that foreign companies can invest in the private limited company without a prior government approval.
  6. Business reliability- The private limited company is registered under the Companies Act 2013 and has a legal structure which creates its credibility amongst the people. Thus the company can expand more easily.
  7. Issuing ESOP and Sweat equity Shares- The private limited company is empowered to issue sweat equity shares and provide employee stock option to their employees. This helps in motivating the employees and increasing their morale.
  8. The requirement of members - In order to incorporate a private limited, only two shareholders and two members are required. This helps the aspiring entrepreneurs to easily set up their business.

Documents required for privately limited company registration in India-

  1. Identity proof (Driving license, Voter id card, passport)
  2. Residence Proof( Electricity bill, Bank statement, Mobile bill)
  3. Registered Office address proof- (Electricity bill, Bank statement, Mobile bill)

Steps to incorporate a private limited company in India

Step-1- Acquiring Digital Signature Certificate (DSC)

In order to validate the documents submitted electronically, it is crucial to place a valid digital signature on. This provision is made in order to ensure safe submission of the required documents electronically. The applicant is required to apply for the Digital signature certificate on the ministry of the corporate website.

Step 3: Creating the new registration account on MCA Portal

To facilitate the procedure of incorporation it is crucial to acquire the registered user account on MCA Portal for filing an e-Form, for online fee payment, for different transactions as registered and business user. Creating an account is totally free of cost.

Step 4: Filing of electronic forms

Through this step the applicant is required to file electronic forms relating to incorporating company name, registering the office address or notice of situation of office and notice for appointment of company directors, manager and secretary also regarding the take and pay for their qualification shares. The forms for these purposes are as follows-

  1. RUN- In case the applicant desires to obtain a prior approval for the desired company name he required to file the Reserve Unique Name (RUN) form with the ministry of corporate affairs. In this form, he can give one name for the proposed company which may be accepted or rejected by the ministry.
  2. Form-32: Through this form notice for appointment of new Directors, Managers and Secretary shall be submitted. Further, if you don’t want to submit the RUN form for the prior approval of the name you can also opt to obtain the approval in this form.

Step-4 -Drafting Memorandum of Association and Article of Association

The MOA and AOA of the proposed company shall be drafted.

Memorandum of Association- Memorandum of association is a document which defines the relationship of the shareholders with the company. It basically contains the objectives and powers of the company.

Articles of association- They are the bye-laws which define the relationship of the company with outsiders. Information such as the total number of members, share capital, rules for a meeting of the company, voting power of members must be included in the Articles of Association.

Step-5- Incorporation certificate

After the careful scrutiny of the application and document submitted the MCA may grant the certificate of incorporation to the proposed company. Further, the applicant will receive a confirmation email regarding the application for incorporation of a new company, and the status of the form will get changed to Approved.



Company Registration is now Free of Cost

Start-ups are the ultimate opportunities for the youngsters to showcase their business talent. People in India are full of skill and caliber. Startup Business is an idea that brings young minds to the single platform. Perfect place for your business and wealthy career. Goals that are fulfilled before time is the challenge achieved by brilliant minds. India is an exemplary place to start a business with a mob of most business efficient people. The country that has become great for investment.

Small business and people with perfect business idea have got a tremendous opportunity to incorporate business with no cost. Yes, it is now free of cost to register a company in India. It is a significant step taken by the government of India for small businessmen to legalize and expand their business.         

Free of cost Company Incorporation

Company Registration in India has now become effortless. Free company registration is a boom for business starters to legalize their business. Company is a business entity that carries commercial and industrial enterprises at a parallel phase. A company follows certain rules and regulation which makes it proficient body. Here are the steps some steps are taken government to make company registration easy and flexible.    

  • Company can now be registered at zero cost up to an Authorized cost of INR 10 lakh.
  • Company name filing will have a procedure.
  • Digital Signature will not be required for Company Name Approval
  • Reserve Unique Name (RUN) is a new service that will be launched soon.
  • Director Identification Number (DIN) will not be required for company name approval.
  • Director Identification Number (DIN) will be required in case of SPICe form filing.


Now register all the types of company free of cost

Free company registration in India is a transformation that will make things simple for business in India. Whether, it is a Private limited company, Public limited Company, One Person Company (OPC) all the forms company are free of cost. Limited Liability Partnership known as the LLP Registration is unclear under the category of free of cost registration.

There are some cost required to be paid by people those will register company now. Here are some points under which some entities will be chargeable with a basic amount.

  • Director Identification No. (DIN) Fees of Rs.500 per Director
  • Digital Signature Certificate (DSC) Fees of Rs.600 per promoter
  • State Stamp duty which comes around from Rs.200 to Rs.10,000/-
  • Professional fees (Comes around from Rs.5,000 to Rs.14,000/-)
  • Stamp paper and miscellaneous cost come around to Rs.500 to Rs.2000/- (Depends upon a number of members).

Easy steps to claim free of cost company Registration

It is very easy to register a company in India and it is now free as well. But you need to follow the basics and hire an expert from professional company registration service. Since there is no direct procedure. Professional Company services are here to resolve all company registration issues. With the reasonable amount of basic professional fee. The process has no government fees for authorized capital less than INR 10 lakhs.   

This is a great step taken by the government to ease business in India. With some mutual benefits that are actually beneficial for business in India. Investors and Young minds will be keen for business opportunities. Zero cost company registration will make things less cost effective and more raise more profits in the business. The initiative will also reduce the time consumption and also the process will require fewer documents.


Free of Cost company registration is just like a revolutionary step taken by Government of India. Business registration is one of the major benefits of county’s wealth. India secures the position in the top ten economic nation in the world. Things will be built in a better way.


Difference between Mutual Funds and Nidhi Company

Nidhi Company and mutual fund are two distinct form of business as they differ in terms of their objectives, and the nature of the business.

Very often people make a mistake of considering Nidhi Company and the mutual fund's company as one and the same form of companies. However, there is a very significant difference between the two. These two companies differ in the term of their objectives, nature of business, dealings etc.

Nidhi Companies are recognized under section 406 of the Companies act 2013 as the company belonging to the non- banking Indian Finance sector. The main objective of the Nidhi Company includes inculcating the habit of thrift and saving among its members only. The core business activity of this form of the company includes lending and borrowing among its members only. The basic principle of Nidhi Company is the principle of mutuality. Nidhi Company is also known as the permanent fund, Benefit Fund, Mutual Benefit Fund or mutual benefit company. Further, the Nidhi Companies are regulated by the ministry for corporate affairs.

Mutual funds are the kind of an investment vehicle that is created by the pool of money collected from many investors for the investing in multiple securities. Mutual Funds are managed and operated by the professional money managers who allocate into the securities and try to make capital gains and incomes out of it. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. The mutual fund attempts to provide small or individual investors access to the professionally managed portfolios of equities, bonds and other securities. Through the mutual fund money is invested in hundreds of securities thus the investor is able to attain diversification at very low prices.

Difference between Mutual Funds and Nidhi Company

  1. One of the major distinctions between the mutual fund and Nidhi Company is that the Nidhi Company is empowered to deal only with its members however there is no such restriction on mutual funds.
  2. The main objective of the Nidhi Company is to develop the habit of thrift and savings amongst its members. On the other hand, the main objective of the mutual fund is to increase the wealth of depositors.
  3. The main nature of business of Nidhi Company is lending and borrowing of money among its members only. However, the nature of business of mutual fund is accepting the deposits and making investments from the money received from any investors.
  4. The Nidhi Company can use the amount of deposits received for lending the money to the members only. On the contrary, the mutual fund can use the amounts of deposits received for making investments or carrying out the business of chit funds, hire purchase, leasing finance, acquisition of securities etc.

Get complete information on Nidhi Company Registration – Documents, Procedure and Requirements.




Process of Converting Section 8 Company into Other form of Companies

A section 8 Company can be converted into the private limited company, public company and other forms of companies. However, a section 8 company cannot be converted into a one person company.

Section 8 company is registered for the non- profit purposes or the charitable purposes only. The main objectives of Section 8 Company are promoting research, social welfare, religion, charity, commerce, art, science, sports, education, and the protection of the environment. One thing to be noted about section 8 Company is that any profits and income arising shall be applied for promoting only the objects of the company. Further, no dividend is paid to its members.  Section 8 Company is empowered to convert itself into the companies of any other kind after following the prescribed conditions under the rule 21 and rule 22.

Conversion Process

Following steps must be followed in order to convert section 8 Company into any form of company-

  1. Obtaining the consent of the members- An approval of members of the company shall be taken by the way of special resolution passed at the general meeting. The explanatory statement containing the reasons for such conversions shall be attached to the notice of the general meeting. Further, a certified copy of the special resolution along with a copy of the Notice and the explanatory statement shall be filed with the Registrar in Form No. MGT- 14.
  2. Obtaining NOC from other authorities- If a company has obtained any special privilege, benefit or grant(s) from any government authority or a recognized body then it shall give them notice in writing and proof of service along with the application for conversion. By filing the notice a “No Objection Certificate” must be obtained and filed with the Regional Director, along with the application.
  3. Filing an application with the regional director- The sections 8 company shall make an application in FORM NO-18 to the regional director along with the copy to ROC for converting itself into other forms of companies.

It is mandatory for the section8 company to file all its financial statement and Annual Returns of the financial year before submitting the application to the Regional Director. In case the application is filed after the expiration of 3 months from the financial year to which the financial statement has been filed, a statement of the financial position duly certified by chartered accountant made up to a date not preceding thirty days of filing the application shall also be attached.

4 Declaration by the board of directors- A declaration shall be given by the Board of directors asserting that no part of income or property of the section 8 company is transferred directly or indirectly by way of dividend or bonus or otherwise to the members of the company.

  1. Certificate from professionals- A certificate certifying that the company has complied with the conditions laid down for conversion has been prescribed with from a practicing Chartered Accountant/ Company Secretary in practice/ Cost Accountant shall be filed by the company.
  2. Publishing a notice in the newspaper- The section 8 company shall publish a notice in Form INC 19 within a week from the date of making the application to the Registrar of Companies. The notice shall be published in vernacular language and one English language newspaper. Further, the copy of such notice in newspapers shall be submitted to the Regional Director immediately after their publication.
  3. Sending the notice to authorities- A copy of the notice, application and all attachments shall be sent to the below-mentioned authorities through registered post or hand delivery to:

(i) The Chief Commissioner of Income Tax having jurisdiction over the company,

(ii) Income Tax Officer who has jurisdiction over the company,

(iii) The Charity Commissioner,

(iv)The Chief Secretary of the State in which the registered office of the company is situated,

(v) Any organization or department of the Central Government or State Government or other authority under whose jurisdiction the company has been operating.

These authorities shall make representations, if any, to the Regional Director within sixty days of the receipt of the notice.

  1. Approval or rejection by the regional director- In order to take this decision the regional director may require the applicant to file approval of any particular authority and he may also obtain the report from the Registrar. After being satisfied the regional director may issue an order approving the conversion of the company into a company of any other kind. The regional director may impose any conditions as he deems fit. Following are some of the conditions that may be applied-

(i)The company is required to give up all claims of special status, exemptions, and privileges after the conversion.

(II) To make compensations for the difference in prices of the immovable property to the buyer.

(III) Within 30 days of receiving the approval, the company is required to set off the accumulated profits or unutilized income brought forwarded from the previous years and transfer the balance to IEPF account.

Before imposing the conditions or rejecting the application, the company shall be given a reasonable opportunity of being heard by the Regional Director.

  1. Post Conversion requirements-If the conversion is approved by the regional director the company shall pass a special resolution for amending its memorandum of association and articles of association consequent to the conversion of the section 8 company into a company of any other kind.
  2. Obtaining the fresh certificate of Incorporation-The Section 8 company is required to file the certified copy of the approval of regional director in Form INC 20 within 30 days of receipt. The approval shall be filed along with the Amended memorandum of association and articles of association of the company and a declaration by the directors that the conditions if any imposed by the Regional Director have been fully complied with. Further after receiving all the documents the Registrar of Companies shall register the documents and issue a fresh Certificate of Incorporation.

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How to Remove a Director from the Private Limited Company?

The directors of the company are the trustees of the company. Directors act on the basis of resolutions made at directors' meetings and derive their powers from the corporate legislation and from the company's articles of association.

The powers to remove directors have been conferred to the shareholders.  The shareholders hold a legal right to remove a director in the general meeting by passing an ordinary resolution. This legal right of the shareholders can never be taken away or damaged by the memorandum of association or article of association or any documents or agreement.

Procedure for removal of directors

Following is the procedure to be followed in order to facilitate the removal of directors of company-

  1. A special notice reflecting the intention of the shareholders of the company to pass the resolution for the removal of directors shall be filed by the shareholders with the company at least 14 days prior to the meeting at which it is to be moved. The number of days shall be counted excluding the day on which notice is served and the day of the meeting.
  2. As soon as the company received the notice it is required to give the notice to the members of the company. The notice must be given in the same manner as it is given for conducting the meeting.
  3. The company may also give the notice to the members by publishing an advertisement in the newspaper having an appropriate circulation not less than 7 days before the meeting in case it is unable to give notice to all the members.
  4. A requisition can be made by the director who is proposed to be removed against his removal and he can make a request to the company for notifying it to the company. If the representation is made within the appropriate time and is of reasonable length then the company must mention the fact that the representation has been received at the meeting. Further, the copy of the representation must be sent to every member along with the notice of the meeting.

In case the company is unable to send the representations to members then the representations must be read out at the meetings if the directors require so.

  1. The general meeting shall be convened to discuss the matter relating to the removal of directors and for passing an ordinary resolution regarding the same.
  2. In case the company is the listed company then the copy of the proceeding of the general meeting shall be filed in the stock exchanges where securities of the company are listed.
  3. Within 30 days of passing the resolution E- form DIR-12 for the removal of directors shall be filed with the registrar of companies.


Remuneration allowed to Limited Liability Partnership

Limited Liability Partnership (LLP) is the form of the company having the features of partnership firm and company both. One of the major benefits of LLP over partnership firm is that the liability of members of partnership firm is limited to their only.

For rewarding the active participation of the members of LLP in the operation of LLP the remuneration is normally payable to the partners who are actively contributing to the operation of the Limited Liability Partnership. For rewarding their work and efforts alike any employee, the remuneration is payable to them.

Majorly the income of the partners of LLP is from the following three sources i.e. by the way of remuneration, interest, and shares in profits. Interest is paid to partners who have introduced the capital whether by way of cash or any other mode. Further profit is the amount distributed among the partners as a return from the profit earned by the LLP with the capital introduced by the Partners in LLP.  In addition to this, remuneration includes any salary, bonus, commission paid to the partner of the LLP.

Person eligible for receiving remuneration

Every working, non-working and sleeping partner authorized under the LLP agreement is eligible for obtaining remuneration from the LLP. However there is a limit on the amount of remuneration to be paid to each partner. The maximum permitted limit is as follows-

On first 3 lakhs of Book profit or loss                                            Rs. 1,50,000 or 90% whichever is more

On Balance                                                                                         60% of the profits

Taxability of the remuneration received

The remuneration received by the partners is taxable from LLP will be taxable in the hands of Partners as Business Income. Further, it will be allowed as the deduction for the LLP if the remuneration paid to such working partner is authorized by the LLP Agreement and the amount of remuneration does not exceed the specified limit.

Interest on Capital Introduced:

The interest received by the partners is taxable in the hands of the partners. While the interest paid to the partners it is allowed as the deduction of the Limited liability Partnership. However, the maximum interest allowed under Income Tax Act is simple interest at the rate 12% p.a. Any amount in excess of 12% is disallowed under the Act.

The share of Profit:

The share of profit received by the partners, whether being working or Non-working Partner is exempted under Section 10(2A) of Income Tax Act.

Annual Compliances for Companies with their Due Dates

Every form of the company be it private limited company, one person company, limited liability partnership are mandatorily required to file various forms, returns and documents with the Registrar of Companies (ROC) in an electronic mode within the prescribed due dates along with the prescribed fees. Companies and LLPs have to Comply with ROC by filing the various return, forms and documents and these could be categorized into two heads.

Annual compliance Filing These are those compliances which are required to be made once in a year by all the companies and LLPs.

Event-Based Compliance Filling– These are those compliances which are required to be made from time to time.

Annual compliance requirements and their due dates

 Penalty for non- compliance

The Penalty for the company:

Any company which fails to file the annual return is punishable by the fine not less than Rs 50,000 but which may extend to the amount of Rs 500,000.

Further, the continuous failure of three years may lead to consequences of the addition of company’s name into default list by ROC. Also, leading to striking – off the name of the company from Register of Companies can be caused at the discretion of Registrar.

Penalties for the directors

Every office in default i.e. responsible for the compliances (directors) are fined with fine not less than Rs 50,000 but which may extend to the amount of Rs 500,000; or imprisonment for a term which may extend to six months; or both.

In addition to penalties, continuous non-compliance for three years disqualifies the directors of the company to be to be appointed as the director in another company for a period of five years from the date on which the failure of annual compliance persists.

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