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How to convert a Private Limited to an LLP in India?

How to convert a Private Limited to an LLP in India?


Convert Private Limited Company to LLP or Limited Liability Partnership

People who are creative savvy never tend to sit on a place for hours and work all day. Instead, they move on to an entrepreneur role using their desires and creativity efficiently into a private limited company. Yet, the needs of every individual vary from time to time, so a part of them wishes to Convert Private limited company to an LLP. On taking this decision, several entrepreneurs end up in documental chaos, thinking what all to be counted for and how the tax to be paid can get reduced.
The LLP (Limited Liability Partnership (LLP) is a newly designed corporate structure that combines the partnership flexibility and diverse advantages of limited liability of a company at a nominal cost. To be precise, it is an alternative solution to drive business with the benefits of limited liability of a company.

Conversion Effects

To convert a private limited into an LLP, the business or the company should be subjected to the following conditions, they are,

  • The Private Limited Company must not have a security interest in its assets when it is being applied for the conversion into an LLP.
  • Only the authorized shareholders of the business will be considered the partners of the LLP, post-conversion.

The Private Limited Company into LLP conversion has the following effects:-       

  • The Private Limited Company will be dissolved.
  • The company’s registrar removes the name of the Private Limited Company from its records as well as register.
  • Once the company gets converted, all the liabilities, assets, interests and the obligation of the Private Limited Company get transferred to the Limited Liability Partnership.

Note – The liabilities, agreements, contracts, and employment sustainability remain the same.

  • Depending upon the license terms and tax numbers, GST number must be re-issued. By any means, this license can’t be shifted automatically.

Process Of Converting A Company From Private Into LLP

1. Receive Director Identification Number (DIN)

  •  The requirement (minimum) number of designated partners for a firm to become an LLP is 2.
  • At least one of the partners must be an Indian resident.
  • DIN is allocated only at the time of adding a person as a director, designated partner in a company or an LLP.
  • The first member to be added as directors in the company is to obtain DIN. DIN will be needed especially for those who would become the designated partners.
  • It is mandatory to apply for a DSC before applying for the DIN. A Body Corporate can be listed as a partner in a Limited Liability Partnership via a nominee.

2. Meeting of Board of Directors of Company

  • Make a meeting with the Board of Directors of the company.
  • Pass the resolution for Conversion of Private Company into LLP.
  • Pass the resolution to authorize all the directors to file each necessary form with MCA.
  • Pass the resolution to authorize any director to file all the mandatory forms with MCA.

3. Application for Name Availability

The firm must now apply for the name reservation of LLP and get the name approval certificate from the ROC.

4. Filing of Incorporation Form with Required Documents

File E Form with all the below-mentioned attachments:

  • Address proof of the registered office of LLP.
  • The sheets of subscriptions.
  • Consent to function as designated partners and partners.
  • Resident proof and identity of designated partners and partners.
  • Details of LLP / Company in which the partner/designated partner is a director / designated partner

5. Filing of Application for Conversion into LLP

For the conversion of a private company into an LLP, the FORM 18 is mandatory and it is to be filed along with form for incorporation.
This form has information about the conversion of the company into LLP such as:

  • Whether or not all the shareholders of the company have given their consent for the conversion of the private company into the LLP.
  • Whether all the authorized partners of the LLP make up all the shareholders of the company and no one else.
  • An up to date Income-tax return to be filled as per the Income-tax act, 1961.
  • The documents which include the latest annual returns and balance sheet under the Companies Act, 2013 (filed with MCA).
  • If any conviction, validating, ruling, order, a judgment of any Court, Tribunal government authority and/or any in favor of or against the company is subsisting as on date as mentioned?
  • Pertaining to know any security interests in the assets of the firm is subsisting or still in effect.
  • Whether an earlier application was filed for the conversion of the mentioned company to into LLP and it was rejected by the Registrar for some reason.
  • Whether there is a presence of any secured creditors.

File E-FORM- 18 along with following attachments:

  • A mandatory statement of the shareholders’ consent
  • A mandatory account statement of the company mentioned as true and verified by the independent auditor
  • All the secured creditors’ list along with their consent
  • Acknowledgment copy of the latest income tax return which is mandatory.

6. Certificate of Incorporation as LLP from ROC

After all the formality completion process by the company and being proved the respected ministries, the ROC must issue a COI as stating the conversion of LLP.

7. Drafting of the Limited Liability Partnership Agreement

Contents of the Agreement include:

  • Name of the LLP
  • Name of Partners and Designated Partners
  • Contribution form
  • The ratio of profit shares
  • The partners’ rights and duties
  • The business proposals
  • Rules for governing an LLP

8. Filing of E-Form-3

This form includes the information about the LLP Agreement filled between eachpartner& must be filed within 30 days from the conversion date of the company into an LLP.
Mandatory attachment: LLP Agreement

9. Filing of E-Form -14 (Intimation to ROC)

After receiving the list of incorporation certificates of LLP, it must be filed within 15 days of the conversion date.

Attachments With E-Form 14

  • A copy of the Certificate of Incorporation (COI) of LLP.
  • A copy of the incorporation document submitted in E-Form to the respective ROC.

Taxation On Converting A Private Limited Company Into LLP

It is a necessary factor for the entrepreneurs in India to know the nukes and corners about the Limited Liability Partnership including the taxation effects after Converting the private limited into LLP. The conversion of the company into an LLP never attract capital gain tax because this conversion is not considered as transfer -as defined under the IT Act.
Hence, it will not attract capital gain tax with respect to the following conditions

  • Each asset and liability of the private company become the asset and liability of the LLP.
  • Every shareholder of the company becomes the LLP partner.
  • The profit-sharing, capital proportion, and the partners’ ratio are in the same proportion alike the shareholding in the company.
  • The shareholders of the firm do not receive any benefit either directly or indirectly in the LLP; except by capital contribution and profit-sharing ratio.
  • The gross receipts, turnover and total sales in any of the three previous years from the conversion date must not exceed Rs. 60 Lacs.
  • The total assets value as appearing in the company’s account book in any of the previous 3 years must not exceed Rs. 5 crores.