Conversion of LLP to Private Ltd. Company

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Conversion of LLP to Private Ltd. Company in India

The conversion of a Limited Liability Partnership (LLP) to a Private Ltd. Company, as authorized by the Ministry of Corporate Affairs on 31 May 2016, involves specific procedural steps. This process requires the preparation and submission of various documents to the Registrar of Companies (ROC), including forms URC-1, INC-32, INC-33, and INC-34. It’s crucial to consider the income tax implications, especially regarding capital gains, during this transition. The article aims to explore the provisions of the Company Act and the capital gain implications associated with converting an LLP into a Company.

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Process for Converting LLP to Private Limited Company

The process may vary depending on the jurisdiction in which you operate, but the following is a general overview of the process and the documents required for conversion in India:

The first step is to obtain Digital Signature Certificates for the proposed directors and shareholders of the private limited company.

Directors of the private limited company will need to obtain DIN. This can be done online through the Ministry of Corporate Affairs (MCA) website.

Choose a unique name for your private limited company and check its availability. You can reserve the name through the MCA portal.

  • Prepare the necessary documents for conversion, including the Memorandum of Association (MOA) and Articles of Association (AOA).
  • File the required forms (e.g., Form URC-1) and documents with the Registrar of Companies (ROC) for approval. These forms can be filed online through the MCA portal.

Pay the applicable fees for the conversion process and stamp duty as required.

The ROC will review the application and documents. If everything is in order, they will issue a Certificate of Incorporation. This certificate confirms the conversion of the LLP into a private limited company.

Apply for a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN) for the newly formed private limited company.

Update all relevant registrations, licenses, and permits with the new private limited company details. This includes GST registration, bank accounts, and any other applicable licenses.

Documents Required for Conversion

Application for Conversion

A formal application for converting the LLP into a private limited company.

Memorandum of Association (MOA)

This document defines the company's main objectives and powers.

Articles of Association (AOA)

This document outlines the company's internal rules, regulations, and governance structure.

Declaration of Compliance

A declaration by the proposed directors confirming compliance with all legal requirements.

LLP Agreement

The original LLP agreement that outlines the terms and conditions of the existing LLP.

Financial Statements

Copies of audited financial statements of the LLP for the previous years.

Proof of Address

Address proof for the registered office of the company.

Identity and Address Proof

Identity and address proof of all directors and shareholders.

NOC from Partners

A No Objection Certificate (NOC) from all partners of the existing LLP, stating their consent for conversion.

Digital Signature Certificates (DSC)

DSCs for all directors and shareholders.

Director Identification Number (DIN)

DIN for all directors.

Name Availability Certificate

A certificate confirming the availability of the chosen company name.

Consent Letter

A letter of consent from all partners to become shareholders in the newly formed private limited company.

Minutes of Meeting

Minutes of the meeting where the partners decided to convert the LLP into a private limited company.

List of Documents to be uploaded along-with Form URC-11

  1. Member’s List containing details such as the name, address and shares owned by the members.
  2. List of First Directors of the Company with Name, Address, DIN & Passport, etc.
  3. List of Partners of the LLP with Name, Address, etc.
  4. Filing all mandatory documents for the company’s registration with the Registrar of Companies
  5. Copy of the Limited Liability Partnership Agreement and a certified copy of the registration, duly verified by at least two LLP partners.
  6. The document, containing the specifics of the company’s nominal share capital and the number of shares, divided by the number of shares taken and the sum charged for each of the shares and the name of the company with the term private limited to be issued.
  7. There must be a certificate of no objection from all the creditors of the LLP.
  8. Account statement of the company’s accounts certified by the auditor, which should not be less than six days from the application date, and a copy of the newspaper advertising.
  9. Statement showing:
  • Number of all shares of the company with ratio in which divided.
  • Number of all shares taken and the amount.
  • LLP name with addition of Pvt. Ltd.

Advantages of Converting LLP to Private Limited Company

Advantages of Converting LLP to Private Limited Company

Converting a Limited Liability Partnership (LLP) to a Private Limited Company can offer several advantages, depending on the specific needs and goals of your business. Here are some of the key benefits of making this conversion:

Similar to an LLP, a private limited company provides limited liability protection to its shareholders. This means that the personal assets of shareholders are safeguarded in case of business debts or legal issues. The liability is generally limited to the amount invested in the company.

A private limited company is considered a distinct legal entity from its owners (shareholders). This separation allows the company to enter into contracts, own assets, sue or be sued in its own name, providing a clear distinction between business and personal affairs.

A private limited company enjoys perpetual existence, which means it can continue to exist regardless of changes in ownership or the departure of partners or shareholders. This provides stability and continuity to the business.

Converting to a private limited company can make it easier to raise capital and attract investments. Private limited companies can issue shares, allowing for equity financing and potentially facilitating business expansion and growth.

Shares of a private limited company can be easily transferred or sold, making it more convenient to bring in new investors or facilitate changes in ownership without disrupting business operations.

Some government contracts and business opportunities may be restricted to private limited companies or corporate entities, giving you improved access to such opportunities.

Private limited companies are often perceived as more credible and trustworthy by clients, suppliers, and partners due to their formal corporate structure and regulatory oversight.

Depending on the jurisdiction, private limited companies may enjoy certain tax advantages, including lower corporate tax rates, deductions, and exemptions, which can lead to potential tax savings compared to an LLP. Consult with a tax expert to understand the specific tax benefits applicable to your situation.

Converting to a private limited company can project a more professional image for your business, which can be beneficial in attracting clients and partners.

Offering stock options or employee stock ownership plans (ESOPs) is easier in a private limited company structure, making it more attractive to recruit and retain talented employees.

In case you want to sell your business or exit for any reason, a private limited company structure can provide more straightforward options for finding buyers or investors.

Private limited companies are subject to regulatory oversight, which can provide legal protections and ensure compliance with corporate laws and regulations.

FAQs

Businesses often convert to a private limited company for better access to financing, enhanced credibility, the ability to issue equity shares, and more expansive growth opportunities.

Yes, the conversion is allowed and governed by the provisions under the Companies Act, 2013, and rules defined by the Ministry of Corporate Affairs (MCA).

The LLP must have a minimum of two partners, and there should be at least seven members (partners and/or shareholders) post-conversion.

Key steps include obtaining Directors Identification Number (DIN) for the designated partners, acquiring Digital Signature Certificates (DSC), approval of the company name, drafting a Memorandum of Association (MOA) and Articles of Association (AOA), and filing the necessary forms with the MCA.

The proposed name should be unique and not resemble any existing company or LLP. It must be approved by the Registrar of Companies (ROC).

Required documents typically include LLP agreement, consent of partners, a list of creditors and shareholders, NOC from creditors, and other statutory declarations.

All assets, liabilities, rights, and obligations of the LLP are transferred to the private limited company upon conversion.

The process can take several weeks to a few months, depending on various factors such as document preparation, submission, and approval times.

Tax implications can be significant. It’s advisable to consult with a tax advisor for detailed guidance as the conversion may lead to changes in tax structures and liabilities.

Post-conversion, the company must adhere to compliance requirements under the Companies Act, including holding annual general meetings, filing annual returns, maintaining statutory registers, and undergoing statutory audits.

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