ADVANTAGES / FEATURES
To form a private limited company from a sole proprietorship, the procedure is to first form the private limited company and then take over the sole proprietorship through a Memorandum Of Association (MoA) and transfer all benefits and liabilities to the limited company. So, the following requirements must be taken care of before applying for a certificate of incorporation.
- Directors: For the formation of a private limited company minimum of two directors are required. One of them can be the proprietor himself, and the other can be any relative or friend.
- Director Identification Number: The directors need to have an Identification Number as a prerequisite to incorporation.
- Shareholders: The company needs to have a minimum of two shareholders, and they can be the same as the directors. The owner of the sole proprietorship needs to be one of the directors of the limited company.
- Capital: The company needs to have a minimum capital of 1 Lakh rupees.
So to summarize, it is as shown below:
Benefits of a Private Limited Company
Capital expansion: A sole proprietorship is limited to the capital of the owner, whereas the private limited company has fundraising options and can raise higher capital for expansion.
- Limited liability: A sole proprietor is wholly responsible for the losses, and his/her personal assets also get attached to repay creditors in case of losses, however, in case of a private limited company, such liabilities are limited by shares or warranty.
- Continuity: A sole proprietorship is dependent on a single person, so its existence is limited to that of the proprietor’s ability to operate. Whereas, the private limited company is a separate legal entity and not bound by the existence of a single owner.