Conversion of Private Limited Company to LLP in Bangalore

Conversion of Private Limited Company to LLP in Bangalore

Introduction

Limited Liability Partnership has become a very popular business type after the introduction of Companies Act, 2013. It is also called an LLP. It is a kind of partnership in which the liabilities of the partners are limited. In this business type, LLP is a separate entity like a company. It is a combination of a partnership firm and a private limited company. 

An LLP in Bangalore retains its power and independence even when the partners change. This is because, LLPs are treated as independent legal entities, wherein supporting partners enjoy limited liability, as the name implies.

LLPs in Bangalore are a preferred business model because they are an alternative to the corporate business vehicle, which provides the benefits of limited liability, while also allowing its members the flexibility to organize their internal management on the basis of a mutually agreed agreement, as in a partnership firm.

Hereโ€™s a deeper look at everything you need to know about converting your Private Limited Company into an LLP.

         Advantages of Limited Liability Partnership        

Limited Liability Partnership Act, 2008 was introduced on April 1st, 2008 which governs the operations of Limited Liability Partnership. This act was primarily introduced for promoting small and medium sized organizations. Advantages of the LLP are as follows: 

Liability of the partners are limited:

As the name suggests the liability of the partners in Limited Liability Partnership is limited. The main reason for conversion of partnership into an LLP is that liabilities of the partners become very limited. Partners do not face any issues, if they are unable to pay the debts. Unlike Partnership firms, in the case of Limited Liability Partnership; creditors have no rights to take or sell the personal assets of the partners for the repayment of their loans as it is in the name of the LLP.

Easy transfer of Ownership:

In this type of business, ownership can easily be transferred which attracts the individuals to go for the registration of Limited Liability Partnership. 3. Separate legal entity: Limited Liability Partnership is a type of business where the company is an independent and discrete legal entity, and this benefit is reaped by the partners of the company.

Less Compliance:

Limited Liability Partnership has very less amount of compliance in comparison to other types of business in terms of: 

  1. For registration of a LLP, there is no criteria of minimal amount of the capital contribution required. 
  2. The cost of forming a Limited Liability Partnership is very less.
  3. In Limited Liability Partnership, audit is only carried out when the capital contribution in the LLP is more than Rs. 25 lacs and turnover of the LLP is more than Rs. 40 lacs.  D. Limited Liability Partnership can have any number of partners, there is no criteria on maximum numbers of the partners.
  4. It is not compulsory for an LLP to hold some minimal number of meetings.
  5. Minimum Alternate Tax (MAT) is not applicable in case of Limited Liability Partnership.
  6. There are no such stern regulations in LLP in terms of maintaining the statutory records. H. Profits earned and distributed by the Limited Liability Partnership are not subjected under Dividend Distribution Tax (DDT).


๐Ÿ‘‰   Eligibility for Conversion      

The LLP Act allows a private limited company or an unlisted public company to be converted into an LLP under the following conditions:
  1. There is no security interest on its assets at the time of application
  2. No e-forms are pending
  3. There are no open charges against the company
  4. All shareholders have consented to the conversion
  5. All creditors of the company have consented to the conversion
  6. The company must have filed at least one balance sheet and annual return
  7. All shareholders have agreed to become partners of the LLP
  8. The company must have share capital.
  9. The company should not be a Section 25 company or a Section 8 company

Companies That Cannot Be Converted into an LLP

  1. All those companies engaging business in the banking, finance and insurance sector
  2. All those companies having a secured loan/security interest on assets
  3. Additionally, all those companies having FDI where performance-linked conditions are applicable
  4. All those companies which have external commercial borrowings
  5. All those companies that have secured FDI under the approval route.

๐Ÿ‘‰Documents Required for Conversion of Company into LLP   

The following documents have to be attached along with the application to convert a Private Limited Company into LLP:

  1. Consent of each of the shareholders of the company for conversion of the firm into LLP in the given format.
  2. Incorporation document in Form 2.
  3. Form 3- Form of application and declaration of incorporation of an LLP.
  4. Clearance/no-objection certificate from tax authorities.
  5. Statement of assets and liabilities from the company.
  6. List of all the creditors along with their consent.
  7. Approval from any other country.
  8. Authorization to make a declaration.
  9. Optional attachments, if any.

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 allotted with company incorporation or adding a director or designated partner in a company/ 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 essential 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

  1. Call a meeting of the Board of Directors.
  2. Pass requisite Resolution for Conversion of Company into LLP.
  3. Pass requisite Resolution to authorize any director to file all the necessary forms with MCA.
  4. 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

  1. File E Form FiLLiP with ROC along with following Attachments:
  2. Address proof of the registered office of LLP.
  3. The subscription sheets.
  4. Consent to act as a designated partners and partners
  5. Identity and Resident proofs of designated partners and partners
  6. 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

  1. Form 18 is the form for conversion of a company into an LLP. But it needs to be filed with Form for incorporation itself.
  2. This form has information about the conversion of the company into LLP such as:
    1. Whether all the shareholders of the company have given their consent for the conversion of a company into the LLP.
    2. If all the partners of the LLP comprise all the shareholders of the company and no one else.
    3. An up to date Income-tax return is file as per Income tax act, 1961.
    4. Documents including the latest balance sheet and annual returns under the Companies Act, 2013 filed with MCA.
    5. 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?
    6. Getting to know regarding any security interest in the assets of the company is subsisting or still in force.
    7. Whether any earlier application for conversion of the said company into limited liability partnership was refused by the Registrar.
    8. If there is a presence of any secured creditors.
  3. File E-FORM- 18 with ROC along with following ATTACHMENTS:
    1. Statement of the consent of shareholders (Mandatory)
    2. Statement of accounts of the company certified as true and correct by the independent auditor
    3. List of all the secured creditors along with their consent
    4. 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

  1. Contents of Agreement are:
  2. Name of LLP
  3. Name of Partners & Designated Partners
  4. Form of contribution
  5. Profit Sharing ratio
  6. Rights & Duties of Partners
  7. Proposed Business
  8. 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)

  1. After receiving incorporation certificate of LLP it has to be filed within 15 days of the date of conversion.
  2. ATTACHMENTS OF E-FORM 14
  3. Copy of Certificate of Incorporation (COI) of LLP.
  4. Copy of incorporation document submitted in E-Form FiLLiP to ROC.



Charges paid for Conversion:

Following are the fees which are paid at the time of conversion:

  1. If the contribution in the LLP is less than or equal to Rs. 1 lac then Rs. 500 is charged. 2. If the contribution in the LLP is more than Rs. 1 lac but less than and equal to Rs. 5 lacs then Rs. 2000 is charged.
  2. If the contribution in the LLP is more than Rs. 5 lacs but less than and equal to Rs. 10 lacs then Rs. 4000 is charged.
  3. If the contribution in the LLP is more than Rs. 10 lacs then Rs. 5000 is charged. Consequences of Conversion:
  4. The private company was dissolved after the conversion.
  5. The Registrar of Companies removed the name of the private limited company from its register.
  6. After conversion, all the assets, liabilities, rights, properties, privileges, obligations, and interests of the private limited company are in the name of LLP.
  7. The conversion does not have any effect on the existing employee, contracts, obligations, liabilities, and contracts.

Any active license or the permits given to the Private limited company from any authorities prior to the date of conversion is not automatically passed on to the Limited Liability Partnership. So, the LLP needs to apply again for fresh application for the licenses and permits from the respective authorities.

Effects of Conversion

The implications due to the conversion of a company into an LLP:

๐Ÿ‘‰ The private company is dissolved after conversion.

๐Ÿ‘‰ The name of the private limited company will remove from the register of the ROC.

๐Ÿ‘‰ The conversion will not affect existing liabilities, obligations, agreements, contracts and continued employment.

The company has to intimate all the authorities concerned about the conversion and make necessary changes in all the registrations and licenses.

Conclusion

As per the points discussed above, LLP is a more convenient form of organization than a company. This is true from a compliance and taxation point of view only. Best for small entrepreneurs and professionals mainly. But if you are a large enterprise or need to shuffle the directors or looking for some funding or investors, then Private Limited is best.



Created & Posted by Sony Garg

Accountant at TAXAJ

TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you a One Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else visit TAXAJ

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