Conversion of Private Limited Company into LLP
Limited Liability Partnerships (LLP) are emerging ever since the introduction of the Companies Act, 2013 as it is a form of business entity, which allows individual partners to be free from the concept of joint liability of partners in a partnership firm. LLPs are preferred form of business as it is an alternative corporate business vehicle that provides the benefits of limited liability of a company and allows its members the flexibility of organising their internal management on the basis of a mutually arrived agreement, as is the case in a partnership firm.
A registered limited company in India (Private or Public) has a lot of complex formalities and incurs additional overheads for managing affairs including mandatory board meeting, maintenance of statutory records, filling of e-forms with MCA etc. Absence of such mandates for LLP combined with advantages such as non-applicability of dividend distribution tax on profit repatriation, transfer of profit rules and deemed dividend profit issues, MAT provisions and many more.
Hence, LLPs involve the best practices of private companies and also protect the freedom of partners, giving them the ability to decide the norms of the company. In a nutshell, it combines the best features of various kinds of businesses.
Accordingly, in this article, we shall discuss about the procedure and provisions w.r.t. conversion of a Private Ltd. or unlisted Public Company into LLP:
Get your Private Limited Company converted into LLP in the fastest possible manner.
It usually takes 7 to 10 working days.
- Name approval in RUN
- Digital Signature Tokens
- Filing of Forms
- Issue of Incorporation Certificate along with PAN and TAN
- Includes Govt Fees & Stamp duty for Authorised Capital upto Rs. 1 Lakh except for the states of Punjab, Madhya Pradesh and Kerala
- Assistance in Opening Bank Account
- Businesses looking to expand or scale operations on higher level
- Businesses aiming to work globally or with reputed clients
- Businesses looking to expand or scale their operations
Name approval form filing
Preparation of Incorporation Documents
Getting those docs signed by the respective stakeholders
Filing of e-Forms with ROC
Receipt of Incorporation Certificate with PAN, TAN, GST, EPF, ESI & Bank Account.
Name, Contact Number and Email Id of all the Stakeholders.
Directors Identification Number, if already.
Self Attested PAN, Aadhar & Passport size photo of all the Stakeholders.
Apostilled Passport, Mobile Bill and other KYC docs in case of NRI Stakeholder.
Latest Month Personal Bank statement of all the Stakeholders.
Specimen Signatures of all Stakeholders.
Few Proposed Business Names along with Objects.
Latest Electricity Bill/Landline Bill of Registered Office.
NOC from owner of registered office. (If Owned)
Rent Agreement from Landlord. (If Rented/Leased)
Brief description of main business activities of the proposed Company.
Shareholding pattern (50:50 or 60:40) between the Stakeholders.
Authorised & Paid Up Share Capital of the Company.
Limited Liability Partnership is a combination of both Company and Partnership. It is especially suitable for small to medium-sized business enterprises.
It is governed by Limited Liability Partnership Act- 2008 which came into force from April 1, 2008. This Act was proposed for promoting the Micro Small Medium Enterprise (MSME).
LLP registration has the advantage of self-governance and less compliance as compared to other types of corporate entities.
Process of Conversion of company into LLP
1. Obtain Director Identification Number (DIN)
The minimum number of designated partners for the incorporation of an LLP is two. One of them must be an Indian resident. Currently, DIN is only allotted only at the time of incorporation or while adding a person as a director or designated partner in a company or an LLP. Hence, first such members need to be added as directors in the company to obtain DIN. DIN will be required for those who would become designated partners.
Further, it is important to apply for a DSC before applying for the DIN. A Body Corporate can also be a partner in a Limited Liability Partnership through a nominee.
2. Meeting of Board of Directors of Company
- Call a meeting of the Board of Directors.
- Pass requisite Resolution for Conversion of Company into LLP.
- Pass requisite Resolution to authorise any director to file all the necessary forms with MCA.
- Requisite resolution to authorise any director to file all the necessary forms with MCA.
3. Application for Name Availability
The company will have to apply for reservation of name of LLP And GET NAME APPROVAL CERTIFICATE FROM ROC.
4. Filing of Incorporation Form with Required Documents
File E Form FiLLiP with ROC along with following Attachments:
- Address proof of the registered office of LLP.
- The subscription sheets.
- Consent to act as a designated partners and partners
- Identity and Resident proofs of designated partners and partners
- Detail of LLP(s) and/ or company(s) in which partner/ designated partner is a director/ designated partner.
5. Filing of Application for Conversion into LLP
- Form 18 is the form for conversion of a company into an LLP. But it needs to be filed with Form for incorporation itself.
This form has information about the conversion of the company into LLP such as:
- Whether all the shareholders of the company have given their consent for the conversion of a company into the LLP.
- If all the partners of the LLP comprise all the shareholders of the company and no one else.
- An up to date Income-tax return is file as per Income tax act, 1961.
- Documents including the latest balance sheet and annual returns under the Companies Act, 2013 filed with MCA.
- Validating if any conviction, ruling, order, a judgment of any Court, Tribunal or other authority in favour of or against the company is subsisting as on date?
- Getting to know regarding any security interest in the assets of the company is subsisting or still in force.
- Whether any earlier application for conversion of the said company into limited liability partnership was refused by the Registrar.
- If there is a presence of any secured creditors.
File E-FORM- 18 with ROC along with following ATTACHMENTS:
- Statement of the consent of shareholders (Mandatory)
- Statement of accounts of the company certified as true and correct by the independent auditor
- List of all the secured creditors along with their consent
- Copy of acknowledgement of latest income tax return (Mandatory)
6. Certificate of Incorporation as LLP from ROC
After complying to all the formalities by the company and approved by the Ministry, ROC to issues a COI as to the conversion of LLP.
7. Drafting of Limited Liability Partnership Agreement
Contents of Agreement are:
- Name of LLP
- Name of Partners & Designated Partners
- Form of contribution
- Profit Sharing ratio
- Rights & Duties of Partners
- Proposed Business
- Rules for governing an LLP
8. Filing of E-Form-3
- This form provides information about the LLP Agreement entered into between the partners. This form is to be filed in 30 days from the date of conversion of the company into an LLP.
Attachment Required: LLP Agreement
9. Filing of E-Form -14 (Intimation to ROC)
After receiving incorporation certificate of LLP it has to be filed within 15 days of the date of conversion.
ATTACHMENTS OF E-FORM 14
- Copy of Certificate of Incorporation (COI) of LLP.
- Copy of incorporation document submitted in E-Form FiLLiP to ROC.
Taxation on Conversion
It is best to know everything about Limited Liability Partnership in India including the effects on taxation after conversion. The conversion of Company into an LLP will not attract capital gain tax as this conversion is not a “transfer” as defined under the IT Act.
Also, it will not attract capital gain tax subject to the following conditions:
- All the assets and liabilities of the Company become the assets and liabilities of the LLP.
- All the shareholders of the Company become partners of the LLP
- The capital proportion and profit-sharing ratio of partners are in the same proportion as that of the shareholding in the Company.
- The shareholders do not receive any benefit, directly or indirectly in the LLP, except by way of capital contribution and profit-sharing ratio.
- The total sales, gross receipts, and turnover in any of the three preceding years from the date of the conversion does not exceed Rs. 60 Lacs.
- The total value of assets as appearing in the books of account of the Company in any of the previous three years does not exceed Rs. 5 crores.
Effect of Conversion
The following are some of the implications due to the conversion of a company into a LLP:
- The private company is dissolved after conversion.
- The name of the private limited company will remove from the register of the ROC.
- The conversion will not affect existing liabilities, obligations, agreements, contracts and continued employment.
Company has to intimate all the authorities concerned about the conversion and make necessary changes in all the registrations and licenses.
Advantage of Conversion
- On the conversion of a private limited company into LLP, all assets and liabilities of the company will convert into those of the LLP. However, no instrument of transfer required. Hence there will not be any stamp duty implications on such transfers as well.
- There is no limit to the number of partners; which is not so in case of private limited companies.
- There is no compulsion on holding a minimum number of meetings and maintaining statutory records.