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Benefits of conversion from sole proprietor to company?

AUDITOR VINOTHKUMAR (a) (870 Points)

29 September 2012

Dear Sir/Madam,

Pls. Advice me...

What re the benefits of converting a sole proprietorship into private limited company.........?

Thanks advance

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2 Replies

AUDITOR VINOTHKUMAR (a) (870 Points)
Replied 30 September 2012

pls. advice me

Mohammed Yasar (Practicing Company Secretary) (119 Points)
Replied 01 October 2012

PARTNERSHIP FIRM CAN BE CONVERTED INTO COMPANY UNDER PART IX OF COMPANIES ACT 1956. IN CASE OF PROPRIETERSHIP, YOU HAVE TO FLOAT A NEW COMPANY AND THEN TAKE OVER THE PROPRIETERSHIP. FOR THAT PURPOSE, YOU HAVE TO DRAFT ARTICLE OF NEW COMPANY IN SUCH A WAY THAT IT ALLOW THE COMPANY TO TAKE OVER THE EXISTING PROPRIETERSHIP. HOWEVER I M FURNISHING BELOW THE BENEFITS OF COMPANY IN COMPARE TO SOLE PROPRIETERSHIP

BENEFITS OF CONVERTING A SOLE PROPRIETORSHIP INTO COMPANY

1. Legal Entity:

Proprietorship does not have legal entity as the Proprietor and the firms are same persons. But Company has separate Legal entity other than its shareholders and Directors and can operate like a legal person

2. Transferability of Ownership:

In Proprietorship, the entire business needs to be sold. But in Company, Ownership is easily changeable by transferring entire share holding to the new management with the consent of all members of the company.

3. Liability:

In Proprietorship, the liability of the Owner is unlimited and extends to his personal assets. But in Company the liability of members are Limited to the share taken and does not extends to personal property.

4. Creditworthiness:

In Proprietorship, the creditworthiness of Proprietorship firms depends upon the goodwill and creditworthiness of its Proprietor. But in Company, due to Stringent Compliances & disclosures under various laws, companies enjoy high degree of creditworthiness.

5. Continuity of Business:

Death or Insolvency of Owner dissolves the Proprietorship. But Company has Perpetual Succession, death or insolvency of members does not effect its existence.

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