Conversion of Private Company into LLP

Conversion of Private Company into LLP

Understanding Limited Liability Partnership

LLP 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.

LLP Registration has the advantage of self-governance and less compliance as compared to other types of corporate entities. 

Benefits of LLP as compared to Corporate Form:
Comparative Analysis

MINIMUM COMPLIANCE LEVEL & COST SAVING:

After commencement of Companies Act, 2013 cost of compliance has increased many fold in the case of Companies, while a LLP has to comply with a very few compliance.

The comparative chart of compliance to be made by a company and LLP is given below.

ParticularsLLPPrivate Company
Maintenance of Statutory RecordsNo such Registers are required to maintainMany Registers are Required to Maintain Under Company as per Companies Act- 2013
Addition or Deletion of DirectorsRequire to amend LLP Agreement and File e-form- 3 & e-form-4.Require to Pass Resolution in General Meeting, File e-form-DIR-12 and require many documents from the person who is appointed as Director. (As per Section-152 of Companies Act-2013.)
Change in Registered OfficeRequire to amend LLP Agreement and File e-form Form-15There is Complete lengthy process for change in registered office of company as Per Section-13 of Companies Act-2013
Increase in CapitalOnly require to amend LLP Agreement and File e-form Form-3.Require to Pass Ordinary resolution in General Meeting and file form SH-7.
Annually form filling requirementOnly Two annual formE-form- 8,

E-form-11

There are much forms E-form AOC-4, 

E-form- MGT-7, 

E-form-ADT-1

Disclosure of InterestNo such requirementRequire to Take disclosure from director under Section-184(1) and to file form- MGT-14.
Convening of MeetingsNo such requirementRequire to hold Meetings as per Section- 173. (At least Two Board Meeting and one Annual General Meeting for Small Company and At least four Board Meeting and One Annual General Meeting for other then Small company).
Audit of AccountsRequire only if Turn over above 40 lacs or Contribution more than 25 lacs.Audit is Compulsory.
Loans & borrowingsAs per LLP Agreement. No other requirementsThere is Cap for Loans and Borrowings as per section 179 & 180, Require to hold Board Meeting and file form with ROC.
DepositsNo such condition.Loan from other then director is cover under deposit as per Definition of Deposit under Companies Act-2013.
Related Party TransactionsNo RestrictionsTransaction to be at arm’s length price only and as per provisions of Secton-188 of Companies Act-2013.


If the following conditions are satisfied then the transfer of capital asset or intangible asset to LLP or any transfer of share or shares held in company by a share holder on conversion of Company into LLP shall not be regarded as transfer:

S. No.ConditionParticulars
         i.             Turnover LimitThe Total sales, turnover or gross receipts in business of the company do not exceed Sixty Lakh (60 Lakh) Rupees in any of the three preceding previous years
        ii.             All the shareholders of company became partner of the LLPAll the shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company.
      iii.             Capital Contribution and Profit Sharing Ration on Conversion.The Capital Contribution and Profit Sharing ration of the shareholders of company should be in the same proportion as their shareholding in the company as on the date of Conversion.
      iv.             No other consideration to partners.No consideration other than share in profit and capital contribution in the LLP arises to partners.
       v.             Profit Sharing Ration after conversionThe erstwhile shareholders of the company continue to be entitled to receive at least 50 per cent in aggregate of the profits of the LLP for a period of 5 years from the date of conversion
      vi.             Assets and LiabilitiesAll assets and liabilities of the company become the assets and liabilities of the LLP.
    vii.             Accumulated Profit (Reserve)No amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the company for a period of 3 years from the date of conversion
  • If all the above conditions (i) to (vi) are complied with, the conversion shall not attract capital gains tax either for the company or the Successor LLP or for the shareholders of the Company, who became partner in the successor LLP and get share of profits and capital in the LLP in lieu of their shares in the company.
  • If any of the above conditions (i) to (vi) is not complied with, then as per provisions of Section 47 A (4) such transfer of Capital Assets & Intangible assets deemed to be liable to Capital gains of the successor LLP or the Shareholders of the predecessor company in the previous year in which such non-compliance took place.

Event Based Compliance by LLP:

ComplianceSectione-formTime Limit
Filing of Consent of Designated Partners7(3)Form 4Within 30 days of incorporation or subsequent appointments
Filing of Change in Partners25(2)Form 3 and   Form 4Within 30 days of Change
LLP Agreement & Changes therein23(2)Form 3Within 30 days of incorporation or Changes in LLP Agreement
Shifting of Registered Office13(3)Form 15Within 30 days of Compliance
Change of Name19Form 5Within 30 days of Compliance.

Regular Compliance by LLP:

Compliancee-formTime Limit
Filing of Statements of Accounts & SolvencyForm-8Within 30 days from the end of 6 months from the closure of Financial Year
Filing of Annual ReturnForm-11Within 60 Days of closure of Financial Year

TABLE OF STEPS OF CONVERSION:

S. NO.PARTICULARREQUIREMENT
A.Call BM- to change name – ending with word LLP
B.File Form for Name approval with work LLPE-form LLP-1
C.ROC issue name approval certificate
D.Incorporation documents with registrarFile e-form -2
E.Application of Conversione-form – 18
F.LLP Agreement- within 30 days of approval of above formse-form- 3
G.If incorporation certificate is issued by department; then
H.Intimation of Conversion to Registrare-form-14

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 authorize any director to file all the necessary forms with MCA.
  • Requisite resolution to authorize 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 OF COMPANY INTO LLP 

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.  

ADVANTAGES 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. 

Conclusion

As per the above discussions, LLP is a more convenient form of organization over a company from compliance and taxation point of view. So, it may be more suitable for small entrepreneurs and professionals particularly. The conversion from an existing company can be made to an LLP while retaining the advantages of Limited Liability and fewer compliance. 

For more information visit Taxaj
Posted by Mohini
Team Taxaj


    • Related Articles

    • Conversion of Private Limited Company into LLP

      Limited Liability Partnerships are popular due to the multiple advantages as they are a mixture of both Company and Partnership firms. LLP offers the benefits of a Company and the flexibility of Partnerships. The Limited Liability Partnership is a ...
    • Conversion of Private Limited Company to LLP in Bangalore

      In the dynamic business landscape of Bangalore, companies often find themselves exploring different structures to optimize operations and align with their evolving goals. One such transition that many companies consider is converting from a Private ...
    • Convert Partnership Firm to LLP

      The shift from traditional partnerships to Limited Liability Partnerships (LLPs) has increased in recent years. The reason behind this is that LLPs offer more flexibility, unlimited partners and the like. But the real driving force behind the shift ...
    • Transitioning from Private Limited Company to Limited Liability Partnership (LLP): A Step-by-Step Guide

      Conversion of Private Limited Company to Limited Liability Partnership (LLP) Introduction: Limited Liability Partnership (LLP) is a popular business structure that combines the benefits of a company and a partnership. It offers limited liability to ...
    • Procedure for Converting LLP To Private Limited Company

      Several businesses started in India as Limited Liability Partnership (LLP), may now wish to convert into a private limited company for more growth in business or for infusing equity capital. An LLP can be converted into a Pvt. Ltd. company as per the ...