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Business reorganisation

Pvt ltd 322 views 1 replies

Sunny

CA Business

401 Points Joined March 2007

When a sole proprietor is converted into private ltd. company, what will be the capital at which it will be converted? Meaning thereby

If a sole proprietor is carrying on trading business, his capital is Rs. 20 lacs (this can be personal as well as from business and person is no different from sole proprietor for filing IT return so in return capital will include both).

While conversion, if the business is separated from person and the capital comes to around Rs. 10 lacs, whether authorised share capital should be 10 lacs or it can be formed at 1 lac also? Or it will be at Rs. 20 lacs as mentioned above?

Thanks

Replies (1)

P C Agrawal

Registered independent director Past Ch

8229 Points Joined March 2007

1. Get the business valuation done properly considering capital of the proprietorship firm including accumulated profit and goodwilll etc.

2. Decide consideration for transfer of business accordingly.

3. This consideration could be either in the form of 100% share capital or partly share capital and partly unsecured loan from the proprietor. However, under Companies Act 2013 there are strict provisions for taking loan from shareholders u/s 73(2). Further, there are restrictions on borrowing u/s 180.

Considering above provisions you have to structure the capital.