Startup
Start Your Business
Private Limited Registration
Public Company Registration
OPC Pvt Ltd Registration
LLP Firm Registration
Section 8 Company Registration
Nidhi Company Registration
Insurance Company Registration
NBFC Company Registration
Producer Company Registration
Foreign Subsidiary Registration
Foreign Branch Office
Foreign Liaison Office
Foreign Project Office
Overseas Company Registration
Proprietorship Firm Registration
Partnership Firm Registration
Grow Your Business
GST Registration
MSME Registration(UDYAM)
Shop & Establishment Registration
Startup India Registration
ESI/PF Registration
IEC Code (Import Export)
Startup Consultation
Appoint Virtual CFO
Angel Funding/ VCs
Virtual Office Service
Due Diligence of Company
Business Development
Protect Your Business
Trademark Registration
Trademark Objection
Trademark Hearing
Trademark Opposition
Trademark Infringement
Trademark Renewal
Trademark Assignment
Trademark Withdrawal
Trademark Monitoring
Logo Design Service
Copyright Registration
Patent Registration
Exit Your Business
Close Company
Fast Track
Close LLP
Close Firm
GST Cancellation
Compliances
Change Services
Change Company Name
Change LLP Name
Change Company Object
Change LLP Object
Increase Authorised Capital
Increase Paid-up Capital
Increase LLP Capital
Transfer of Shares
Alteration in MoA & AoA
Resignation of Auditor
Appointment of Director
Resignation of Director
Change in Designation of Director
Shifting Registered Office of Company
Shifting Registered Office of LLP
Dormant Status of Company
Mandatory Compliances
Appoinment of Auditor
Annual Filings of Company
Annual Filings of LLP
Annual DIN/DPIN KYC
Annual Return of Deposits
Half Yearly MSME Return
Statutory Registers & Minutes
XBRL Filing of Companies
eStamping of Share Certificates
Dematerialisation of Shares
RBI FEMA Compliance
GST Returns Filing
ESI-EPF Returns Filing
TDS Returns Filing
Change in Structure
Proprietorship to OPC
OPC to Private Limited
Private Limited to OPC
LLP to Private Limited
Private Limited to LLP
Partnership Firm to LLP
Private Limited to Public Company
Public Company to Private Limited
Trust/Society to Section 8 Company
Existing Company to Section 8
Existing Section 8 to Company
Services
Accounting & Book Keeping
GST Compliance
Valuation Services
Corporate Litigation
Company Law Advisory
Services For Banks
Drafting & Vetting Services
Business Setup Advisory
Startups Funding
Business Loans
Get in Touch
Govt Liaisoning
Retainership Services
NBFC
NBFC Company Registration
NBFC Micro-Finance Registration
NBFC P2P Lending Registration
NBFC Core Investment Company
NBFC ROC Compliance
NBFC RBI Compliance
NBFC License Restoration
NBFC Business Plan
NBFC Acquisition
NBFC Consultancy
NBFC Compliance Calendar
NBFC Independent Director
ISO
ISO 9001:2015
Most Demanded
ISO 14001:2015
ISO 13485:2016
OHSAS 18001:2007
HACCP Certification
CE Marking
GMP Certification
CMMI Level 3 Certification
ISO 22000:2005
ISO 27001:2013
FSSAI
FSSAI Registration
FSSAI State License
FSSAI Central License
FSSAI Registration Renewal
FSSAI License Renewal
FSSAI Returns Filing
FSSAI Compliances
FSSAI Consultancy
ITR
Salaried Person
TDS Refund
Firms/LLPs
Companies
NGOs
Income Tax Notice
Income Tax Planning
Income Tax Litigation
Income Tax Computation
Charity
Section 8 Company
Recommended
Trust Registration
Society Registration
80G & 12A Registration
FCRA Registration
NITI Ayog Registration
CSR-1 Registration
CSR 2 Report
CSR Services
NGO Consultancy
NGO Handholding
Govt Grants Support
Partnership
Angel Investors
Venture Capitalists
Co-Working Spaces
Banks and NBFCs
Incubation Centres
Government Wings
Institutional Bodies
Software Companies
CA/CS/CMA/Lawyers
Press & Media Houses
Overseas Ventures
Other Startup Enablers
Contact Us
Home
Business Registrations
Amalgamation of Sole Proprietorship with Company
Amalgamation of Sole Proprietorship with Company
Volume
1
Rate
1
Pitch
1
Amalgamation of Sole Proprietorship with Company. Can you merge your sole proprietorship business with a company? The prohibition by law and possibilities for your business In the dynamic landscape of various structures of business ownership in India, the prospect of transitioning from a sole proprietorship is laden with opportunities and considerations. In this article, Compliance Calendar explores the legal framework, procedural nuances, and recent case laws that impose prohibition on amalgamation of sole proprietorship with a company What makes a sole proprietorship business unique? A sole proprietorship business is a one man army, that is relatively simple and cost effective, compared to corporate ownerships like a company or partnership. As the business is owned by one person, the founder-owner enjoys complete control over the business, decision making and operations. The distinct advantages of a sole proprietorship business are as follows: Tax benefits - A sole proprietorship is taxed in India based on individual tax slabs rates. Based on the latest Budget 2024-25, if the proprietor is less than 60 years old, income up to 2.5 lacs is exempted. The tax rate is 5% for income upto 5 lacs, 20% for income upto10 lacs. The highest slab of 30% is applicable for progressive income above 10 lacs. For small businesses, this typically reduces the overall liability of tax. Losses are allowed to be carried forward and deductions under Sections 10A, 10B, 80-IA, IAB etc. are also allowed. Minimal compliance requirement - Unlike other business structures like corporations or partnerships, sole proprietorships have fewer regulatory compliance obligations. There is no legal requirement to hold annual meetings, maintain extensive records, or file separate tax returns for the business entity. Confidentiality and Complete ownership over profits- As the sole owner, the proprietor can maintain confidentiality and closely guard business secrets. He/she is also singularly entitled to all the profits generated by the business. Since there is no sharing of profits with partners or shareholders, there is greater scope for creativity, bold decisions and reaping the rewards of it. Ease of closure - In the event of discontinuing operations, winding up a sole proprietorship is relatively simple. The proprietor can cease business activities without the need for extensive legal procedures or formal dissolution processes required for other business entities. Amalgamation of “a Sole Proprietorship Firm” with “a Company” is not permissible under the law. Delhi High Court’s order on December 1, 2023 in SVS Marketing Sanitary ware Pvt. Ltd versus Kajaria Bathware Private Ltd (Company Petition No. (IB)-322(ND)2023) Brief facts of the case- SVS Marketing Sanitary ware Private Limited (Applicant/'Operational Creditor') filed a petition under Section 9 of the Insolvency and Bankruptcy Code for debt owed due to unsold stock under the Distribution Agreement with the respondents - Kajaria Bathware Private Limited (“Respondent/Corporate Debtor”). A Distributorship Agreement dated 15.07.2016 was executed between the Respondent and Mr. Shibu M (proprietorship concern trading as "SVS Marketing"). This sole proprietorship was transferred to a private limited company, with the promoter of both being the same. Crucial question of law involved in the case - Whether assignment of debt owed by a sole proprietor to a company by way of an amalgamation agreement is valid? Order of the Delhi High Court A merger must involve two companies - The court noted that under Section 232 of the Companies Act, 2013, the parties that are eligible to seek a merger or amalgamation have to be two or more companies only. Specifically, Section 232(1)(a) uses the phrase “……a scheme for the reconstruction of company or companies involving merger or the amalgamation of any two or more companies” On this ground, the Delhi High Court has held that an amalgamation of a sole proprietorship firm with a Company is not permissible under law. The Delhi High Court also notes that a sole proprietorship has no legal entity of its own and is only known by the identity of its proprietor. When the proprietor becomes a member or shareholder of the company, the provisions of Section 230 are still available to the sole proprietor, for the purpose of Compromise and Arrangement, by filing a petition before NCLT. Thus, this ruling by Delhi HC in Kajaria Bathware Pvt Ltd has re-iterated the legal bar on merger of a sole proprietorship with the company. Navigating the transition - Conversion of Sole Proprietorship to a Private Limited Company While the overall benefits of operating as a sole proprietorship in India make it an attractive option for aspiring entrepreneurs, there are certain inherent risks unique to a sole proprietorship. These risks can be mitigated by converting a sole proprietorship into a private limited company. Limiting the liability of the proprietor - In the event of bankruptcy on part of the firm, the personal assets of the sole proprietor can be sold to discharge the debt. This is because the law does not view the identity of the individual as separate from the business. However, in a company form of business, the assets of promoters/directors are distinct and separate from those owned by the company. This ringfences the personal assets of those in charge of the business from any insolvency proceedings filed on behalf of the company. Transferability and Continued Existence - A company offers greater flexibility in case of transfer of shares owing to a change in ownership style and structure. This opens new possibilities of mergers and takeovers that are not available to a sole proprietor. Moreover, the death or departure of shareholders or directors does not affect the continuity of the company. This ensures greater stability and continuity of business operations, making it easier to attract long-term investors. Economic efficiency through raising capital and lower taxes for a growing business - A company can access investments through multiple sources that are not available to a sole proprietor. This includes angel investment, raising funds through venture capital, public issue and private placement of shares. Moreover, a lower corporate tax rate at around 22% is applicable for domestic companies. Additional tax benefits such as deductions under Chapter VI-A, minimum alternative tax and economic benefits of beneficial schemes such as Production Linked Incentive etc. are available exclusively to companies. Mandatory conditions for converting to a sole proprietorship In order to convert a business from a sole proprietorship to a private limited company form, the following conditions should mandatory be followed. Transfer of all assets and liabilities of the proprietorship to the new private limited company. After the incorporation formalities are fulfilled, the assets and liabilities are transferred to the books of accounts of the new company. Retention of ownership – the sole proprietor should retain a minimum of 50% shares in the new company and must hold these shares for a minimum of five years from the date of incorporation. Additionally, a minimum of two directors are required. Not involve monetary consideration - There must not be any monetary consideration involved in this process. This is because the conversion from sole proprietorship to private limited company is not considered to be a sale of business. Brief procedure involved in converting sole proprietorship to a private limited company Obtain Director Identification Number and Digital Signature Certificate for all the directors involved in the conversion process. Additionally, copies of Aadhar card, PAN Card of the Directors are required. Fill the SPICE+ form, which combines formalities of 13 services by three different ministries (Ministry of Corporate Affairs, Ministry of Labor, and Department of Revenue, Ministry of Finance) for name reservation, incorporation, PAN allocation etc. Using the AGILE PRO - S form, application for registration of GSTIN, ESIC and EPFO number, opening of bank account etc. can be completed. Draft the Memorandum of Association and the Articles of Association that align with the company’s objectives, future prospects for growth and ultimate aim. Apply for a new PAN (permanent account number) and TAN (tax deduction and collection account number) for the new company. Minimum share capital of at least 1 lac is required to convert to a private limited company. Details such as address of the company, number of subscribers to Memorandum of Association, stamp duty and other information will also be required by the Ministry of Corporate Affairs before conversion to a private company. Under the purview of the Companies Act, 2013 the conversion of a sole proprietorship into a company embodies a strategic move aimed at leveraging greater fiscal and tax benefits, accessing resources, and expanding horizons. Compliance Calendar has advised diverse entrepreneurs on choosing the right business model, filing legal documents and accessing funding. Connect with our experts today for professional guidance on a smooth and successful conversion process to a private company.
Share this article:
Search more articles:
You may also like
GST Registration: Meaning, Eligibility, Documents, Process and Exemption
Benefits of LLP Registration and its Annual Compliances
Copyright Registration Procedure: Eligibility, Documents, Benefits and Categories of Works
Import Export (IEC) Code Registration and IEC Updation: Laws, Checklist and Procedure
Procedure For Patent Registration | Learn How to File Patent Application
Development and Protection of IPR Law in India: Patent, Trademark, Copyright and Trade Secret
Producer Company Formation and Its Compliances
Importance of Brand Building and Securing it through IPR
An overview of Entry and Exit Strategies available for businesses in India
How to Choose a Company Name in India for Registration
A Beginner's Guide to Limited Liability Partnerships : How They Work
Foreign Companies under the Companies Act, 2013
What is Wholly Owned Subsidiary (WOS) Company and how it is different from Subsidiary Company?
How to register a Private Limited Company in India?
NBFC Registration can be a good option in finance for HNI Individual
Section 8 Online Company Registration in India
Requirements for an Insurance Broker Registration
How to register an IMF with the IRDAI
Frequently Asked Questions (FAQs) on Limited Liability Partnership
What is Governing Insurance Intermediaries Company
Intellectual Property Rights: Understanding the Basics
Protecting Your Inventions: An Overview of Patent Law
Going Global: A Comprehensive Guide to Foreign Subsidiary Company Registration
Empowering MSMEs: Unveiling Government Schemes and Support through MSME Registration
AIF Registration in India: A SEBI Perspective
Copyright Law: What every creators need to know
Regulatory Compliance for Registered Office in Co-working Space
Registration & Approvals in Civil Aviation Sector in India
BEN-2 and its Compliance in India
Foreign Subsidiary Company/ WOS Registration in India
Digital/ Print Media Expansion in India - A Guide to Establishing a Subsidiary Company
Setting up a Subsidiary Company in Single and Multi-Brand Retail Trading in India
Unlocking Business Potential: India's Path to 6G Innovation and Industry Impact
Semiconductor manufacturing in India - Processes, Regulations and Impact
Securing a Personal Guarantee for business loans - Here's everything you wanted to know
Tax Implications of Setting up Business in an SEZ - An analysis of Recent Rulings
Setting up Office in IFSC at GIFT City and Necessary Compliances
Understanding Copyright Protection for Media Programmers and Reality Shows
Types of ITR Forms & Categories of Income
Choosing the Right Legal Structure: Sole Proprietorship, Partnership, LLP, or Company
IEPF Recovery for Unclaimed Shares - Compliance for Companies and Procedure to reclaim shares from IEPF
Information to the Registrar by Company for Appointment of Auditor
Start Your Business
Private Limited Registration
Public Company Registration
OPC Pvt Ltd Registration
LLP Firm Registration
Section 8 Company Registration
Nidhi Company Registration
Insurance Company Registration
NBFC Company Registration
Producer Company Registration
Foreign Subsidiary Registration
Foreign Branch Office
Foreign Liaison Office
Foreign Project Office
Overseas Company Registration
Proprietorship Firm Registration
Partnership Firm Registration
Grow Your Business
GST Registration
MSME Registration(UDYAM)
Shop & Establishment Registration
Startup India Registration
ESI/PF Registration
IEC Code (Import Export)
Startup Consultation
Appoint Virtual CFO
Angel Funding/ VCs
Virtual Office Service
Due Diligence of Company
Business Development
Protect Your Business
Trademark Registration
Trademark Objection
Trademark Hearing
Trademark Opposition
Trademark Infringement
Trademark Renewal
Trademark Assignment
Trademark Withdrawal
Trademark Monitoring
Logo Design Service
Copyright Registration
Patent Registration
Exit Your Business
Close Company
Fast Track
Close LLP
Close Firm
GST Cancellation
Change Services
Change Company Name
Change LLP Name
Change Company Object
Change LLP Object
Increase Authorised Capital
Increase Paid-up Capital
Increase LLP Capital
Transfer of Shares
Alteration in MoA & AoA
Resignation of Auditor
Appointment of Director
Resignation of Director
Change in Designation of Director
Shifting Registered Office of Company
Shifting Registered Office of LLP
Dormant Status of Company
Mandatory Compliances
Appoinment of Auditor
Annual Filings of Company
Annual Filings of LLP
Annual DIN/DPIN KYC
Annual Return of Deposits
Half Yearly MSME Return
Statutory Registers & Minutes
XBRL Filing of Companies
eStamping of Share Certificates
Dematerialisation of Shares
RBI FEMA Compliance
GST Returns Filing
ESI-EPF Returns Filing
TDS Returns Filing
Change in Structure
Proprietorship to OPC
OPC to Private Limited
Private Limited to OPC
LLP to Private Limited
Private Limited to LLP
Partnership Firm to LLP
Private Limited to Public Company
Public Company to Private Limited
Trust/Society to Section 8 Company
Existing Company to Section 8
Existing Section 8 to Company
Services
Accounting & Book Keeping
GST Compliance
Valuation Services
Corporate Litigation
Company Law Advisory
Services For Banks
Drafting & Vetting Services
Startups Funding
Business Loans
Get in Touch
NBFC
NBFC Company Registration
NBFC Micro-Finance Registration
NBFC P2P Lending Registration
NBFC Core Investment Company
NBFC ROC Compliance
NBFC RBI Compliance
NBFC License Restoration
NBFC Business Plan
NBFC Acquisition
NBFC Consultancy
NBFC Compliance Calendar
NBFC Independent Director
ISO
ISO 9001:2015
ISO 14001:2015
ISO 13485:2016
OHSAS 18001:2007
HACCP Certification
CE Marking
GMP Certification
CMMI Level 3 Certification
ISO 22000:2005
ISO 27001:2013
FSSAI
FSSAI Registration
FSSAI State License
FSSAI Central License
FSSAI Registration Renewal
FSSAI License Renewal
FSSAI Returns Filing
FSSAI Compliances
FSSAI Consultancy
ITR
Salaried Person
Firms/LLPs
Companies
NGOs
Income Tax Notice
Income Tax Planning
Income Tax Litigation
Charity
Section 8 Company
Trust Registration
Society Registration
80G & 12A Registration
FCRA Registration
NITI Ayog Registration
CSR-1 Registration
CSR 2 Report
CSR Services
NGO Consultancy
NGO Handholding
Govt Grants Support
Partnership
Angel Investors
Venture Capitalists
Co-Working Spaces
Banks and NBFCs
Incubation Centres
Government Wings
Institutional Bodies
Software Companies
CA/CS/CMA/Lawyers
Press & Media Houses
Overseas Ventures
Other Startup Enablers
Contact Us