Capital gains neutrality for conversion of a sole proprietorship into a company depends on continuity, shareholding, and no extra consideration.

Conversion of a sole proprietary concern into a company is treated as a transaction not regarded as a transfer for capital gains purposes, with the company taking the relevant capital or intangible asset at the previous owner's cost. The position applies only if all business assets and liabilities pass to the company, the sole proprietor retains at least 50% voting power for five years, and no consideration or benefit is received except by allotment of shares.

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