According to section 18 of the Companies Act of 2013, any company that has already been registered can become a different type by amending its Memorandum of Association (MOA) and Articles of Association (AOA).
How Might a Business be Converted?
By changing the Memorandum of Association and Articles of Association, any company can change into another company in accordance with the norms of the country’s company law, which is the Companies Act 2013.
Further, they can apply to the Registrar of Companies, or the ROC. The Registrar of Companies must receive an application for such conversion. Once the Registrar is registered with the registration provisions, the previous registration of that specific company will be closed.
After all necessary paperwork has been registered, a certificate of incorporation will be issued. The Registrar will issue a new certificate of incorporation to the business stating its converted or new form.
Additionally, it is to be noted that such conversion will have no impact on liabilities, debts, or other obligations incurred prior to conversion. The company will continue to have the same debts, liabilities, obligations, contracts, etc., after incorporating a new legal structure as it did under its prior one.
This legal statement addresses company conversions under the 2013 Companies Act.
Modern times have seen an enormous increase in the need and rate of expansion, which has caused a rapid change in the nature of company status to accommodate the necessary needs and overcome the limitations of existing ones. We will, therefore, learn about the various conversion options currently available or possible in that case in accordance with Indian taxation and current government regulations.
Partnership Firm to LLP Conversion
Many partnership firms have begun to change their partnership firm to LLPs since the LLP Act was introduced in 2008. The benefits of conversion are apparent and easy to understand, including the possibility of accepting an infinite number of partners, the creation of different legal companies, limited liability, and a quick and straightforward method of transferring ownership by filling out a form. Due to all of the benefits, LLP has grown to be well-liked by small and medium-sized firms functioning in a developing economy like India.
The Indian Partnership Act, 1932, requires that the partnership firm that wants to become an LLP register as such. Unregistered Firms cannot be transformed into an LLP, in contrast to these. All LLPs that have been converted from Partnership Firms must share the same partners as the original Partnership Firm. Putting this in mind, our expert team at Kanakkupillai would advise you to retire any partners who do not want to be a part of an LLP and to join new partners only after the LLP has been incorporated.
Proprietorship into a Private Limited Company Conversion
Due to the few compliance and documentation requirements, the Sole Proprietorship business entity is the most common one used by most small and medium entities, or Indian entrepreneurs.
The only requirement the entrepreneur needs to comply with is opening a business with current accounts and the Proprietor’s PAN details for income tax filings as the business and income develop. Once you realize that the industry is thriving and there is only one more hill to climb, you can change your sole Proprietorship into a private limited company to achieve this separation.
Once incorporated, an agreement to sell the firm is often drafted between the sole Proprietorship and the Private Limited Company. This is done to transform a Sole Proprietorship into a Private Limited Company. Furthermore, as stated in its Memorandum of Association, the newly created Private Limited Company should take over the Sole Proprietorship Concern to complete the process.
OPC or One Person Company to Private Limited Company Conversion
Section 18 of the Companies Act, 2013, and the Provisions of the Companies Incorporation Rules of 2014 repeal the regulations and procedures for converting an OPC into a private limited company. This change will not impact the OPC’s assets, liabilities, other debts, commitments made, or any ongoing or existing contracts.
There are two ways to transform an OPC into a private limited company: freely and voluntarily or compulsorily. Here, the OPC’s MOA and AOA need to be changed to meet the new standards of the private limited company.
You must also pass a resolution as an OPC in support of the conversion and satisfy the necessary number of members and directors, which is at least two members and two directors. You must also obtain a written NOC from the concerned members and creditors to ensure that no issues will arise in the future.
LLP or Limited Liability Partnership to Private Limited Company Conversion
Many companies that began in India as Limited Liability Partnerships (LLPs) are now willing to change their status to a private limited company in order to take advantage of the benefits that a Private Limited Company has. The simplicity of injecting equity money is the most notable of them all. According to the provisions of Section 366 of the Companies Act of 2013 and the Firm (Authorized to Register) Rules of 2014, an LLP may be changed into a Private Limited Company.
However, a number of conditions must be met before an LLP can become a Private Limited Company. The consent of partners would be necessary. Newspaper advertising should appear in both local and national publications. From the ROC where such an LLP is registered, a No Objection Certificate (NOC) must be obtained. The incorporation process must then be completed.
Private Limited Company to Public Limited Company Conversion
Private limited companies are plentiful, which might even sound small, as their existence is vast in the Indian economy. However, every one of them eventually wants to go public to scale more easily. Even the companies themselves frequently ask the question, “Why go public?”Understanding the distinctions between private limited companies and public limited companies would help.
Initial Public Offerings (IPOs) are an option that public limited companies provide, which is one major attraction of a public limited company. By going public, the business distributes its shares to the broader public.
The option of an IPO eliminates the restriction on share transferability characteristic of private limited companies or corporations.
The maximum number of members in a public limited company is unrestricted, making it possible for them to raise money and have easy access to capital. Therefore, moving from private to public should ideally be motivated by development and flexibility.
Public Limited Company to Private Limited Company Conversion
The Companies (Incorporation) Fourth Amendment Rules, 2018, were created by the MCA or Ministry of Corporate Affairs by notification dated December 18, 2018, which updated the Companies (Incorporation) Rules, 2014. The rules above, which were notified, have been amended to include Rule 41, which outlines the requirements for submitting a request to convert a public limited company into a private limited company. Previously, the conversion application was submitted to the NCLT Benches, which had jurisdiction over the firms, and the process was exceedingly time-consuming.
However, the Central Government now has the authority to approve conversions, freeing up the tribunals from handling conversion cases and making it easy for the companies themselves. Following that, the Central Government granted the Regional Director authority to approve the conversion of a public limited company into a private limited company through notification S.O. 6225 (E) dated December 18, 2018.
LLP or Limited Liability Partnership to Partnership Firm Conversion
The liability of the LLP or Limited Liability Partnership, which is a separate legal entity, is capped at the agreed-upon portion of the partner’s investment in the LLP. In an LLP, the major attraction is that a partner is not liable or accountable for the carelessness or wrongdoing of another partner.
Further, in an LLP, an agreement between the partners, or, as the case may be, a contract between the partners and the LLP, governs all of the reciprocal rights and obligations of the partners within the LLP. However, in the absence of such a contract, the LLP would be controlled by the guidelines set forth in Schedule I of the Limited Liability Partnership Act of 2008, which outlines the partners’ respective rights and obligations.
Additionally, any other business structure, including a partnership created in accordance with the Indian Partnership Act of 1932, a private limited company, and an unlisted public limited company, may convert to an LLP in accordance with the LLP Act’s rules and proper legal procedures. The conversion of an LLP firm to a partnership firm is now discussed.
Private Limited Company to OPC or One Person Company Conversion
According to the Companies Act of 2013, which creates a mechanism to convert one class of company into another, the conversion of a Private Limited Company into an OPC, which stands for One Person Company, is permitted.
Beginning on April 1, 2014, Section 18 of the Act expressly permits the conversion of a registered private limited company.
The business’s responsibilities and contractual obligations before conversion would not be affected by the conversion of PLC to OPC; these claims, liabilities, and obligations would continue to be legally enforceable, and the subsequently formed new OPC would be accountable for them.
Private Limited Company to LLP or Limited Liability Partnership Conversion
Due to their many benefits, Limited Liability Partnerships are very popular since they combine company and partnership business structures. The advantages of a company and partnership flexibility are combined in LLPs.
A limited liability partnership (LLP) is a type of business entity in which the partners’ liability is constrained. Due to their separate legal standing, LLPs can make agreements and own property in their own names.
This article discusses the idea of converting Private Limited Companies into LLPs. The application for the conversion must be submitted with a statement and consent from each shareholder, which is essential.
What is meant by converting the Legal Structure of a Business Entity?
The legal process of changing the present legal structure of your business entity into another without having to create a new entity or dissolve your current entity is known as a change of business entity, also known as business entity conversion or statutory conversion.
This is similar to porting your SIM card from an Airtel connection to, say, Vi Connection without changing the number you are already using.
Changing your company from an LLC to a corporation, for instance. In this instance, the corporation would be the converted entity or the entity that results from a conversion, and the LLC would be the converting entity or the existing entity prior to a conversion.
Companies may alter their legal framework for a variety of reasons. An LLP might decide to become a corporation in order to start awarding stock options to staff members, reduce tax liabilities, or possibly draw in some venture capitalists. On the other hand, a corporation might decide to change its legal structure to an LLC in order to benefit from the latter’s flexibility in decision-making, pass-through taxation (where taxes are passed through the company to the owners), or to get rid of all the ongoing administrative paperwork.
In comparison to other options, such as a merger, a non-statutory conversion, or a dissolution/formation process, which necessitates dissolving the old entity and forming a new entity, a business entity conversion is promoted as one of the least expensive and complicated ways to change a business entity. Your best choice is typically the corporate entity conversion, assuming it’s possible in your state.
If the converted entity has a different domestic state (or “home” state) than the converting entity, additional measures will be required. This is known as domestication, which simply involves changing or converting the home state.
How do I alter my Corporate Legal Structure?
When changing your business entity, you typically need a plan of conversion document, business formation documents for the converted entity, and a certificate of conversion. This is done through the Secretary of State, and while each state has its regulations, generally speaking, there are at least three parts. The Secretary of State’s websites typically have access to these three papers. Although the conversion of a company entity is a relatively new idea and not yet accepted by all states, the majority of them permit it.
State law specifies the terms and conditions for the conversion in a Plan of Conversion. This document contains information about the organization, such as the duties and rights of each member. Along with the other mandatory conversion files, a Plan of Conversion must be submitted. A plan of conversion often includes the following details, at the very least:
- Name of the converting entity
- Name of the transformed entity
- “Continuing existence” is stated.
- A declaration endorsing the conversion
Depending on the entity type you selected, the converted entity must have the Articles of Association or a comparable business formation document. These are typically sent to the Secretary of State together with the conversion certificate and necessary payments.
The document that formally implements your business entity conversion is the Certificate of Conversion, commonly referred to as the Articles or Statement of Conversion. Basic information regarding your converting and converted entities is provided in this conversion document. The Certificate of Conversion typically contains at least the following details in addition to basic information:
- Information on the tax status and the effectiveness of the plan of conversion’s approval statement
- Although ownership interests and liabilities typically carry over to the converted business, state laws on conversion vary from state to state. Depending on your converting and converted entities, there might or might not be tax repercussions.
Why Kanakkupillai for Company Conversion
Transform your business today with Kanakkupillai’s seamless and hassle-free company conversion services. Our team of experts will guide you through the entire process and ensure a smooth transition from start to finish. Don’t let complicated paperwork and legal requirements hold you back. Take the first step towards success and convert your company with Kanakkupillai now. Contact us today @ +91 7305 345 345 to get started!
