With the increasing globalization and widespread startup ecosystem across the world, entrepreneurs felt the need for a corporate form that would be recognized across the world. Hence, it has resulted into increasing demand for the conversion of existing LLP into private limited company. Dive into several essential aspects of conversion of LLP to private limited company including benefits, process and documents required for conversion of LLP into private limited company.
The LLP form of business is a new kind of legal entity compared to a Company form of organization. Before the year 2009, there was no LLP in existence as the LLP Act was enacted in the Year 2009. Thus, there was no question of the conversion of an LLP in a company. Globalization was rising at a high pace, and several entrepreneurs felt the need for a corporate form recognized across the Globe. This has led to a demand for the conversion of existing LLP into a company.
Assessing the need of Home Ministry of Corporate Affairs has issued a notification on 31st May 2016, and it allowed conversion of LLP into Company. These rules are called “the Companies Authorized to register Amendment Rules, 2016. Further, Section 366 of the companies act,2013 provides for conversion of LLP to a private limited company.
| Benefits of Conversion from LLP to Private Limited Company | |
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Closure of one form of business and constitution of a separate entity is not required. Existing LLP is replaced as a Private Limited company |
In most of the registration and licences amendment is to be done because it is just switching the one form of business with another. The fact of conversion will be mentioned in the certificate of Incorporation of the company |
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Title/Ownership of all the properties of the LLP vests in the newly converted company without any need for a separate conveyance. |
No capital Gain Tax is involved |
The Systematic Approach of LLP Conversion to a Company
The conversion of LLP to a private limited company is possible only when the LLP has filed all its statutory returns and that there is no non-compliance of the LLP Act, Indian Stamp Act, Income Tax Act etc. Certain activities need to be followed while going for conversion of LLP to a private limited company. Following are the key activities which have to be performed before the LLP Conversion to the Company begins.
- Due Diligence of the LLP: This is the most critical step which has to be done prior to any activity to convert LLP into a company. The scope of due diligence should be to ascertain whether the LLP Conversion will succeed or fail. As already mentioned any default with ROC filing or Under the Stamp Act shall lead to summary rejection of the application of Conversion of LLP into private limited company.
- News Paper Publication of the intention to convert an LLP into a private limited company is a statutory notice to the ROC, Creditors, Other Stakeholders and the public at large to raise an objection to such conversion along with the grounds of the objection of conversion of the LLP.
- Prepare a statement of accounts of the LLP to be attested by the auditor of the LLP or where there is no auditor by any practicing CA. The statement of accounts must be latest should be later than 15 days from the date on which the application for LLP Conversion to Private Limited is being filed in form URC-1.
- Certification of Compliance with Stamp Act: You have to obtain a certificate from a practising CA, CS or CMA that the LLP has complied with the applicable provisions of the stamp act.
- A statement of Legal Proceedings: The LLP intending to convert as a company needs to prepare a statement of all the court cases, legal proceedings with any statutory authority with its status.
Process of LLP Conversion to a Private Limited Company
For the conversion of LLP to private limited company, several steps need to be followed. The step by step process of conversion of LLP to private limited company goes as below;
Step:1 Partners meeting is to be held for the following purpose
- To register the existing LLP under section 366 of Companies Act 2013
- Choose the way for conversion- There are various ways of converting an LLP into a private limited company, for example by way of slump sale, selling assets of the LLP at their respective value, etc Given the alternates available, the manner in which an LLP shall be converted as a company depends on the specific case.
- Authorize one or more partners to sign all the documents, affidavits, papers, deeds etc and to take all the steps incidental and ancillary to the said conversion of LLP in a company
Step 2: File Run Application for name approval
The run is the name of the application for seeking name approval of the proposed resulting company after the conversion of the LLP. In the case of LLP generally, only the last word(s) are changed. Ie. In place of LLP, the words Private Limited is added.
Step 3: News Paper Publication
Twenty-one days before making the application for conversion in form URC1 publish a newspaper advertisement in the prescribed form URC2, seeking objections, in a newspaper in English and in any vernacular language, circulating in the district in which the LLP is situated.
Step 4: File URC 1 along with linked form
- E-form INC- 33 (For MOA)
- E-Form INC-34 (For AOA)
- INC-9- Specimen Signature of directors
- DIR-2 – Consent to act as Director
- The KYC of the directors and all the attachment as required in normal Incorporation of Company
- News Paper Publication Proof
- Further, where the LLP has more than seven partners MOA & AOA is to be filed in physical form.
Documents required for conversion of LLP into a private limited company limited by shares
A certain set of documents must be arranged and provided in order to get your LLP converted into a private limited company successfully. The essential documents that one will need to undergo the process of conversion of LLP to a company are listed down;
- Copy of certificate of registration of the LLP
- Consent of the majority of members is mandatory to be attached in case the company is limited by shares or Unlimited company
- No objection certificate from the concerned Registrar of Companies (LLP)
- Details of members/partners along with the details of shares held by them, if any.
- Declaration of two or more directors verifying the particulars of all members/ partners.
- An affidavit from all the members/partners for dissolution of the entity if dissolution is chosen as a model of conversion
- Copy of the LLP Agreement
- Copy of Newspaper advertisement.
- Certificate from a CA/CS/CWA certifying the compliance with all the provisions of the Stamp Act, to the extent applicable.
- Undertaking by the proposed directors for compliance with requirements of the Indian Stamp Act, 1899
- A copy of the latest Income Tax Return of the firm
- No objection certificate/Consent given by secured creditors is mandatory to be attached in case of any secured debt outstanding as on the date of application.
- Statement of accounts of the existing entity prepared not be older than 15 days preceding the date of application duly certified by the auditor, if applicable.
- INC-9- Specimen Signature of directors
- DIR-2 – Consent to act as Director
Amidst the rising demand for a corporate entity that will be accepted globally, the concept of conversion of LLP into private limited company was introduced. Assessing this need, the Home Ministry of Corporate Affairs issued a notification on 31st May 2016 allowing the conversion of LLP into a Company. These rules are named 'the Companies Authorized to Register Amendment Rules 2016'. Delve into the process of Conversion of LLP to private limited company along with its benefits and documents required for conversion of LLP into private limited company.
Consult an experienced CS or Legal professional entity to get your LLP to private limited company conversion done efficiently.
FAQs
Q1: How to convert an LLP into a private limited company?
In order to convert an LLP into a company, firstly you need to obtain approval from all partners of the LLP for conversion. Acquiring Director Identification Number (DIN) and Digital Signature Certificate (DSC) for the designated partners should be the next step. After that, file an application with the Registrar of Companies (RoC) for Name Approval, Conversion, and Incorporation.
Furthermore, the preparation and filing of the necessary documents, such as Memorandum of Association (MoA) and Articles of Association (AoA) of the Company is necessary. Upon completion of this process, the applicant will obtain a certificate of incorporation for the converted Private Limited Company from the RoC.
Q2: How long does it take for conversion of LLP to a private limited company?
When it comes to the time limit for conversion of LLP to private company, it can vary depending upon several factors. Such factors include the efficiency of the filing process, workload on the RoC, how accurately the form has been filled, and also the validity as well as visibility of documents submitted. In general, the overall process of conversion of an LLP into a private company takes approximately 30-60 days.
Q3: What are the tax implications of Conversion LLP to private limited Company?
The tax implications of LLP Conversion to a company can be understood by first comparing tax rates of an LLP and a Company. As compared to LLPs, Companies enjoy a lower income tax rate of 25% while for LLPs the same tax rate is flat at 30%. Additionally, after conversion from LLP to a company, the business is exempted from capital gains tax. It also allows carry forwarding of unabsorbed depreciation and losses.
Q4: Is an LLP better than a Private Limited Company?
Private Limited companies tend to exist longer than an LLP. Though managing an LLP is easy, it faces funding challenges. A private limited company can easily raise funds but possesses limitations such as ownership and transfer of shares.
Q5: What is the turnover limit for an LLP?
Limited Liability Partnerships require no auditing of their books of accounts except in cases where their annual turnover crosses the limit of Rs. 40 lakhs or if the contribution is more than Rs. 25 lakh.
clearly explaining the benefits of conversion, such as no capital gains tax and streamlined property ownership transfer.
Switching to a private limited company improves tax efficiency and operational structure. Thanks for sharing