Steps and Benefits of Conversion of sole proprietary Business to Company of Tax Planning and Management

Steps of a sole proprietary to a company

Converting a sole proprietorship to a company involves a series of legal, financial and administrative steps. Here are the steps:

1. Choose the type of company: Decide on the type of company that you want to convert your sole proprietorship into. You can choose from private limited company, public limited company, one person company (OPC), or limited liability partnership (LLP).
2. Obtain DIN and DSC: Directors Identification Number (DIN) and Digital Signature Certificate (DSC) must be applied and obtained for all the prospective directors of the company.
3. Conduct a board meeting: Conduct a board meeting with the proprietor and shareholders to approve the conversion of sole proprietorship into the company. In this meeting, you will need to put forth the memorandum of association and articles of association and adopt the same.
4. Apply for Name approval: After the board resolution is passed, you must apply for name approval by filing the required forms and documents with the Registrar of Companies (ROC).
5. File documents with ROC: After the name approval, you must file the incorporation documents with the ROC. These documents include the Memorandum of Association (MOA), Articles of Association (AOA), and other statutory forms.
6. Issue a certificate of incorporation: Upon successful filing of the documents, the ROC will issue a certificate of incorporation, which means that the company is officially registered.
7. GST registration and bank account: After the incorporation, you must apply for GST registration and open a bank account in the name of the company.
8. Closing Sole Proprietorship: Finally, you must close the sole proprietorship by canceling all licenses and permits that were registered under the sole proprietorship.

Benefit Conversion of sole proprietary Business to Company

1. Limited Liability: One of the biggest benefits that come from converting a sole proprietorship into a company is limited liability. As a sole proprietor, business owners are personally responsible for any debts, losses, or legal liabilities the business may incur. However, when they convert to a company, their personal assets are protected from being used to pay off any business debts.
2. Greater Access to Capital: Companies have greater access to capital than sole proprietorships, as companies can issue stocks or take on investors to finance the business's growth. This financing can help businesses expand operations or invest in new equipment and technologies.
3. Improved Business Structure: By converting from a sole proprietorship to a company, businesses can establish a more formal business structure. This can include a board of directors, officers, and formal bylaws, which can help to streamline decision-making processes and set clear responsibilities and roles.
4. Enhanced Credibility: Companies generally enjoy greater credibility than sole proprietorships, which can be beneficial not just with potential investors but also with suppliers, partners, and customers. This can help businesses build their reputation and attract new customers and partners.
5. Better Tax Treatment: Companies can take advantage of a range of tax deductions and benefits that may not be available to sole proprietorships. For example, companies can often claim a wider range of expenses as tax deductions, and they may be eligible for tax breaks for investing in certain areas or hiring specific types of employees.

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