Conversion of Sole Proprietorship into Private Company

This query is : Resolved

CA VENKATASWAMY (Querist)
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25 February 2020 One of my client want convert Sole proprietorship into Private Company. He started Sole proprietorship in this year and also want to convert to private company in this year so whether it is lawful ? if yes whether expenses incurred in the business upto conversion can be carry forward to company income tax return ? please say the Conversion Process.

Devershi Gupta

Devershi Gupta (Expert)
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25 February 2020 A Sole proprietorship Firm cannot be "converted" into Private Company.
A new Company maybe incorporated which will takeover the business of the Sole proprietorship Firm through a Slump Sale Agreement.
For this following requirements shall be met:
- The MOA of the New Company must include an object that states – “The takeover of a sole proprietorship concern” or similar words.
- All the assets and liabilities of the sole proprietorship firm must be transferred to the private limited company.

As far as Income Tax is concerned, treatment should be same as Slump sale of business.

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