Procedure for Conversion of Private Limited Company to LLP in India
Private limited companies have their own set of compliances. Although, private limited companies carry their own benefits, however, multiple compliances prove to be costly and inconvenient to some businesses. But what’s the solution then?
A good way out is to convert the private limited company to an LLP! Conversion will also save you from obtaining an LLP registration online from the scratch.
How? Here’s the detailed procedure of how a private limited company can be converted to an LLP in India. However, before that, let’s take a quick look at what an LLP is and what are the benefits of conversion of a private limited company to an LLP!
What is LLP?
LLP is a perfect blend of partnership firms and companies in India. LLPs are governed by the Limited Liability Partnership Act, 2008 with the Ministry of Corporate Affairs as their prime regulator. They primarily operate as firms and have their own separate legal existence. However, unlike partnership firms, limited liability partnership registrations are done with MCA.
Benefits of Converting Private Limited Company into LLP
If you are operating your business in the form of private limited companies, then converting it into LLP will entail the following benefits:
- Limited Liability: One of the prime benefits of converting your private limited company into an LLP is that your liability would still be limited. You won’t have to bring your personal assets to the table in case of losses or winding-up. Partnership firms don’t provide this benefit to their partners.
- Lesser Compliances: LLP involves lesser compliances as compared to private limited companies.
- Lesser Cost of Operation: Because of more compliances, the cost of operating a private limited company increases. As LLP involves lesser compliances, the cost of operating an LLP decreases consequently. This is especially beneficial to the businesses at their initial stages.
- Easy Conversion: The conversion process of private limited companies to limited liability partnerships is relatively easy and simple.
- No Limit on the Number of Partners: In a private limited company, the maximum number of shareholders is restricted to 50. However, there is no limit as to the maximum number of partners in an LLP. This facilitates the expansion of business.
How to Convert Your Private Limited Company to LLP in India
Section 56 and 3rd Schedule of the LLP Act, 2008 governs the conversion of private limited companies to LLP. Following is the detailed process for the same:
- Check the Eligibility: For converting into LLP, the private limited company should fulfill the following eligibility criteria:
- There should be no security interest in the assets subsisting at the time of conversion application and,
- The partners in the LLP should comprise of all the shareholders of the company and no one else.
- Calling of Board Meeting: A board meeting shall be called for passing the board resolution for the conversion of the private limited company into an LLP.
- Written consent of all the shareholders, as well as the creditors, should be obtained for conversion into LLP.
- The application shall be filed for checking the availability of the name in Form RUN-LLP. Board resolution along with the proposed object clause shall be attached with the name availability application.
- All the necessary documents shall be executed after the approval of the name along with the filing of the Form FiLLiP and Form-18.
- Filings with the Registrar: Following statements shall be filed with the registrar for conversion of the private limited company to LLP:
- A statement by all the shareholders containing the following particulars:
- Name and registration number of the company
- Date of incorporation of the company
- Incorporation documents and statements shall be filed in Form-2 as referred to in Section 11 of the LLP Act, 2008
- Details of the LLP agreement that is mutually entered between the partners shall be filed in Form-3.
- Registration of Conversion: Once the above documents are received by the registrar, the registrar shall register the documents and issue a certificate of registration stating that the LLP is registered from the date mentioned in the certificate.
- Intimation to Registrar of Companies: Within 15 days after the date of registration, the LLP shall intimate the ROC with which it was registered about the conversion into LLP by filing Form-14 along with the requisite details of LLP.
- Refusal by Registrar: In case the registrar is not satisfied with the information and particulars relating to the conversion, it may refuse the conversion. However, an appeal can be filed to the tribunal against such refusal.
Attachments with Form FiLLiP
Following documents shall be attached along with Form FiLLiP:
- Subscriber sheet
- Details of the company and the LLP
- Proof of registered address of the LLP
- Consent of the Designated Partner
- Any other document as may be required
Attachments for Form-18
- Statement of the shareholders giving consent for conversion
- Statement of assets and liabilities of the company
- List of all the secured creditors of the company along with their consent for the conversion to LLP
- Copy of latest income tax return acknowledgement
- Any other document as may be required
Income Tax Implication
After the conversion of the private limited company into an LLP, all the assets and liabilities of the private limited company become the properties and liabilities of the LLP. This may invite tax implications if not planned wisely. Capital gains tax becomes applicable in case of such conversion. However, income tax has put in place a beneficial provision whereby capital gains tax is eliminated in case of such conversion provided that the following conditions, as laid down in Section 47(xiiib) of the Income Tax Act, 1961 are satisfied:
- all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the LLP;
- all the shareholders of the company immediately before the conversion become the partners of the LLP and their capital contribution and profit-sharing ratio in the LLP are in the same proportion as their shareholding in the company on the date of conversion;
- the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the LLP;
- the aggregate of the profit-sharing ratio of the shareholders of the company in the LLP shall not be less than 50% at any time during the period of 5 years from the date of conversion;
- the total sales, turnover or gross receipts of the company does not exceed Rs. 60 lakhs in any of the 3 previous years preceding the previous year in which the conversion takes place;
- the total value of the assets as appearing in the books of account of the company does not exceed Rs. 5 crores in any of the 3 previous years preceding the previous year in which the conversion takes place; and
- no amount is paid, either directly or indirectly, to any partner out of the balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of 3 years from the date of conversion.
In a Nutshell
Following were the details procedure and tax implications of conversion of a private limited company into an LLP. Many businesses, as well as professional organizations, operate by obtaining LLP registration mode due to its convenience and easy operability.
If you are looking towards the conversion of your company into LLP, then feel free to contact your eAuditors at the eAuditor Office.
Author : Dipen
Date : 08-Jul-2022