takeover of proprietorship business

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Querist : Anonymous

Querist : Anonymous (Querist)

14 June 2011 sir i want to know about the various provisions applicable under various statutes when the running sole proprietorship business is taken over by a EXISTING PRIVATE COMPANY WHERE THE DIRECTOR OF THE COMPANY IS THE PROPRIETOR OF THE BUSINESS WHICH IS BEING TAKENOVER. I ALSO WANT TO KNOW ABOUT THE MANNER OF DISCHARGING THE PURCHASE CONSIDERATION WHETHER THROUGH SHARES OR THROUGH CASH. AND IS THERE ANY CONDITION OR LEGAL REQUIREMENT ON SHARES ISSUED BY THE COMPANY. AND WHAT KIND OF RESOLUTION REQUIRED FOR THIS PURPOSE AND WHETHER IT IS REQUIRED TO INTIMATE ROC? PLZ REPLY SOON ITS URGENT.THANKS IN ADVANCE.

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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14 June 2011 Once a business is sold to any other firm or company,especially a proprietorship concern, the registering authority under Jurisdictional VAT Act has to be informed in writing. The rigistration certificte has to be surrendered.A final return for the turnover made till that date in that financial year,and any returns for the previous periods,are to be filed along with taxes due.Statutory forms drawn from the VAT offices are to be accounted for,and the balance,if any,are to be surrendered.An acknowledgement is to be obtained from the area VAT office. No new bill to be issued for the stock passed on to the buyer of business.The buyer cannot claim input tax credit on purchases made by the seller.

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C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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15 June 2011 As you are interested in converting the proprietorship business into a Private Limited Company then you have to prepare a Memorandum of Association and the main object of the same is to takeover the running business of the proprietorship firm. It is always for a private limited company that there must be minimum 2 persons. Against the valuation of the assets the private limited company can issue shares. If cash is required to be paid then again you have to put cash with the company and the same will be returned back to you.
You have not clearly stated the purpose for which you want to convert the business as a private limited company and hence direct reply cannot be given. Other formalities you have to do as suggested for VAT etc.

C. A. S. S. AGARWAL,
MUMBAI 9870243410

Querist : Anonymous

Querist : Anonymous (Querist)

15 June 2011 sir the sole proprietorship business is not converted into private company but the business is taken over by the company as one of its unit.i want to know about the various provisions applicable in respect of such contract under companies act, income tax act, vat act.

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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15 June 2011 The entire meaning has changed. This clearly shows that you are selling your unit to a private limited company. In this case you have to execute a sale deed and as per the provisions of Income Tax act you have to pay the Capital Gains Tax on assets so transferred. For the depreciated assets it is always short term but if the value is above the original cost then Long term. In case you want to be a director or the shareholder of the company then you can opt for shares in the company or else you can opt for payment by cheque. If it is not your company then you can value the assets and accordingly can transfer. Kindly give more details to be specific on my answer.

C. A. S. S. AGARWAL,
MUMBAI 9870243410

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Querist : Anonymous

Querist : Anonymous (Querist)

15 June 2011 sir let me explain you the case.there is an existing proprietorship business which is taken over by an existing private company and the director of the company is the proprietor of that proprietorship business.now the company wants to take over the business of the proprietorship business say shiv trading company to be its unit.The proprietor wants to carry on the proprietorship business but as a unit of private company say SHIV TRADING COMPANY : A UNIT OF XYZ PRIVATE LTD.Now i want to know about the formalities to be done for this purpose. SIR PLZ GUIDE ME.

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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15 June 2011 You have to make an agreement between the Private Limited Company and the Proprietorship concern. By way of this agreement you can sale the unit of the proprietorship concern to the company and the Capital gain shall be accordingly calculated. You tell me the amount at which you want to sale. This is possible through the Board of directors resolution. You give me the figures without naming the firm of proprietorship as well as the Pvt. Ltd company but for drafting of the agreement you have to give all the details as it is special type of agreement and no professional will give you the draft free of cost.

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Querist : Anonymous

Querist : Anonymous (Querist)

16 June 2011 sir whether ordinary resolution is required or special resolution is required for this purpose and other roc requirements.thanks in advance.

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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16 June 2011 For take over a special resolution is required. I think if the resolution if passed in extra ordinary general meeting the same shall be much better. No other formalities of ROC is required except filing of form No. 32 in case you ae taken as a director and if shares are alloted then share allotment papers to be filed with ROC.

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Rashmi sah

Rashmi sah (Expert)
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11 March 2013 Dear Sir, In this context I want to ask you that in what manner/way the valuation of the proprietorship should be done so that stamp duty will me minimum

Pankaj Gandhi Jaiswal

Pankaj Gandhi Jaiswal (Expert)
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15 February 2014 A Proprietor is having more than one unit want to transfer one of his unit to a Existing Private Limited Company. My Queries are.

1 Will MOA to be amended for take over.
2. What would be best option takeover of all the asset & liabilities of unit and merging of unit balance sheet ( Not Proprietor Balance sheet ) or simply buying the assets at book value and pay the purchase consideration from this consideration unit will discharge their old liability.
3. When all registration with authorities including any licenses to unit for production shall be automatically transferred to the company and no fresh registration is required. Either in Purchase of Asset only or take over of all assets and liabilities.
4. What will be capital gain situation in both cases.
5. How share can be allotted in both cases.

PRADEEP MULANI

PRADEEP MULANI (Expert)
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05 March 2014 To,

Shri S. S. Agarwalji,

IF the company has been incorporated without giving specific object in the MOA but originally the company incorporated to takeover the existing business then is there any remedy available to transfer certain assets & liablities of the proprietorship?

Further the Sales Tax Registration got amended with the new details in the name of company from proprietorship with the same number.

If we are taking at slump sale with Book Value so that no capital gain will arise. The major concern is whether any stamp duty is payable as Agreement would be on Stamp Paper if the Net Assets & Liabilities are equal with Proprietor as Sundry Creditors for the asset & we wish to allot the shares to him otherwise than cash.

Form-2 of ROC specifically asks for attachment:
Copy of any contract or agreement, if any for allotment of shares for consideration otherwise than cash.

We shall be paying the Stamp Duty at the time of increase in the authorized capital of the company to issue further shares to the proprietor, where Stamp Duty has to be paid. But

1.How much stamp duty payable at the time of agreement of sale of assets & liabilities excluding immovable assets?
2. Is special resolution is required to be registered with ROC?

Awaiting your valuable suggestions..