Mostly business owners who start their business on a small level, start with proprietorship firm registration. This is because such kinds of entities are having less expenses and they are having less formalities in comparison to other films. Another reason behind this is that these firms can easily be converted into any other type of firm. Whenever the small business owner needs to expand their business the first thing they need to do is to convert the sole proprietorship into any other types of firm and mostly they choose to convert it into a private limited company. This is because there are many benefits of Pvt Ltd conversion of a proprietorship firm. In order to know about the various benefits of Pvt Ltd conversion of a proprietorship firm, keep reading the current write-up till its last paragraph. This will give you a clear picture, regarding why to convert your proprietorship firm into a private limited company.
What is a Proprietorship Firm?
Sole proprietorship firms are those that are managed by a single person and have no independent legal standing, liability, or permanent succession. Unlike corporate bodies over there, these businesses are simple to start and do not require compliance. These businesses are not subject to any distinct laws or specific registration requirements, unlike corporate entities. It will be considered registered if the owner obtained Shop and Establishment Certification, MSME Registration, or GST Registration. The proprietorship firms’ lone owner is the proprietor. When the owner of such firms wants to expand their business, it has been always suggested to them to convert their entity into private limited, this is because of the various benefits of Pvt Ltd conversion of a proprietorship firm.
What is a Private Limited Company?
These organizations enjoy great recognition among both large and mid-sized business owners. The majority of startups and businesses that are just getting started today select private limited companies as their entity type. This is as a result of the many advantages or benefits it provides. These commercial entities benefit from a number of advantages, including restricted liability, perpetual succession, and position as independent legal entities.
List of Benefits of Pvt Ltd Conversion of a Proprietorship Firm
Some of the key benefits of Pvt Ltd conversion of a proprietorship firm are mentioned or discussed below:
| Particulars | Sole Proprietorship Firm | Private Limited Company |
| Limited Liability | Such firms are not having limited liability. In these firms the entire responsibility is on the shoulders of the proprietor | These companies or entities enjoys the limited liability which means their members are not responsible on behalf of the company |
| Separate Identity | Both the proprietor and the firm are associated with each other they are not having separate identity | Such entities have separate identity which is also one of the crucial benefits of Pvt Ltd conversion of a proprietorship firm |
| Credibility | Less credibility in the market | More credibility in the market |
| Reliability | Less reliability in the market | More reliability in the market |
| Trustworthiness | Less trustworthiness | High trustworthiness |
| Funding | People hesitate to invest in such kind of firms hence it’s tough to get funding | These firms are reliable, credible and trustworthy due to which investors invests easily in these firms which makes funding easy for them |
| Long Term Existence | There existence is not for the long term | They survive for the long term in the market |
| Ownership Transfer | In these firms ownership cannot be transfer as they are run by only one person who is known as proprietor | It’s easy for these firms to transfer ownership |
| Tax Advantages | Here the tax liability is just like the individual’s tax liability | Their tax liability is not like the individual’s tax liability. They have many benefits and advantages when it comes to taxation |
| Employees Benefits | They did not offer much employees benefits | They offers a lot of employees benefits |
| Professional Image | They are not having professional image in the market | They are having professional image in the market |
| Compliances | They are not having any kind of hectic compliances | They have to comply with all the compliances of the corporate bodies as per the company law |
| Governing Law | There is no as such separate governing law of such entities | There is a separate governing law for such entities which is known as Companies Act of 2013 |
| Access to Contracts | They are not having access to contracts, on behalf of such firms proprietor can enter into the contracts | They can enter into contract on their own name |
| Registrar | They are not having any kind of registrar to register themself | They need to register with the registrar of companies |
| Official website | There is no official website for such kind of entities | They are having official website by the name of the Ministry of Corporate Affairs |
| Global Expansion | Global expansion is not possible with such kind of entities | Global expansion is possible here |
| Brand Recognition | They are recognized by the proprietor | They have their own brand recognition |
| Decision Making | Due to involvement of just one person decision making is simple and quick | Due to involvement of lot of people their decision making is little tough and delayed |
| Transfer of Shares | Transfer of shares is not possible here | Transfer of shares are possible here |
| IPO | Initial Public offering is not possible | Initial Public offering is possible, which can help the business to get funds |
| Growth | Business growth is less with such firms | Business growth is more with such firms it is one of the key benefits of Pvt Ltd conversion of a proprietorship firm |
| Types of Business | They are suitable for the small businesses | They are suitable for both the mid-sized as well as big businesses |
| Perpetual Succession | They are not having the perpetual succession and dies with the death of the proprietor | They are having perpetual succession and cannot dies with the death of any of the member of the company |
Conclusion
There are several benefits of Pvt Ltd conversion of a proprietorship firm that contribute to the growth and credibility of the business. Some of the key benefits of Pvt Ltd conversion of a proprietorship firm includes that private limited companies enjoy limited liability, providing financial security to the owners, along with a separate legal identity that enhances credibility and trustworthiness in the market. This enhanced trust facilitates easier access to funding, attracting investors with the promise of long-term business existence and smooth ownership transfer.
Private limited companies also benefit from favorable tax advantages, offer more employee benefits, and project a professional image, making them suitable for mid-sized and large businesses. The compliance requirements, though more stringent, ensure adherence to corporate standards, granting access to contracts and the possibility of global expansion. Overall, the conversion fosters a conducive environment for business growth and success.
