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How to Convert Limited Liability Partnership (LLP) to Private Limited Company

How to Convert Limited Liability Partnership (LLP) to Private Limited Company

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Conversion of Limited Liability Partnership (LLP) to Private Limited Company

There are companies in India that started out as Limited Liability Partnerships which is mostly referred to as LLPs, but these are now eager to change to a private limited company for increased commercial growth and profitability.

The Limited Liability Partnership Act of 2008 does not have a provision addressing the conversion of an LLP into a Private Limited Company, but Section 366 of the Companies Act of 2013 and the Company (Authorized to Register) Rules of 2014 do.

Small enterprises having a capital commitment of less than Rs 25 lakhs and an annual sales turnover of less than Rs 40 lakhs might choose LLP. LLPs that meet requirements are exempt from yearly audit requirements; private limited companies are required to audit their financial statements annually.

Although the requirement for compliance becomes practically same for both the private limited company and LLP in the event that LLP has an annual revenue of Rs. 40 lakhs or also a contribution of capital of an amount which is higher than Rs. 25 lakhs, the owners of LLP may consider changing into a private limited company.

Reasons for conversion of LLP into Private Limited Company

The reasons for changing an LLP or Limited Liability Partnership into a Private Limited Company are different in various cases. Let’s discuss these reasons in a generalized term:

  1. LLP changes its legal status to a private corporation in order to expand its current operations.
  2. LLP can only draw a limited variety of investors; thus, they convert in order to draw more, such international or equity investors.
  3. For the purpose of issuing equity share capital in the private limited Company, the LLP is converted.
  4. To avoid a capital gains tax gain is one of the conversion’s justifications.
  5. To carry forward the entire years’ worth of unrecovered losses and depreciation.
  6. The LLP decides to transform into a Company in order to maintain their credibility, goodwill and brand name.

Conditions for conversion of Limited Liability Partnership into Private Limited Company

Before taking any further steps to convert an LLP into a Private Company, the following requirements must be met:

  1. The minimum number of partners needed for the Limited Liability Partnership to be incorporated as a Private Limited business is two.
  2. The conversion of the LLP should have had the consent of all partners.
  3. The LLP was supposed to submit all required returns.
  4. Publication of information about the conversion of the LLP into a private company in at least two newspapers, one in English and one in any local or vernacular language newspaper that is published in the region where the registered office is located.
  5. The Registrar’s certificate of no objections.

Advantages of Converting a LLP into a Private Limited Company

  • The conversion of an LLP into a Private Limited Company enables commercial firms to maintain their brand identity without investing additional resources in brand promotion.
  • 100% Foreign Direct Investment (FDI) is permitted in a Private Limited Company there; as a result, any foreign investor says, a corporate entity or person may directly invest in the Company.
  • Since the losses and depreciation incurred in the LLP will be carried forward on the conversion of the entity, there won’t be any costs associated with bookkeeping after the conversion.
  • Companies are able to provide stock ownership and ESOP programs for which we should thank to the possibility of conversion of Limited Liability Partnership or an LLP to Private Company. These programs aid businesses in luring skilled workers by offering them incentive packages to join the company.
  • Only venture capitalists or angel investors are the one’s mostly providing cash for a Private Limited Company or Public Company, and if the registration procedure is rigorous, among other things, it enhances the credibility of the corporate structure. This makes soliciting money from other sources simple.
  • The liability of the owners is restricted to the capital they subscribed to but did not pay for.
  • In a private limited corporation, capital gains are not subject to tax.
  • The entity which now has been registered as a Private Limited Company would have its existing LLP substituted to “Pvt. Ltd.” at the end part of its officially registered name.

What are the Documents Required for converting LLP into Private Company

The following is a list of the documents needed for conversion:

  • A proof of address of the applicant
  • A proof for identity of the applicant
  • Passport size photographs of the applicant
  • Copy of latest returns file by the LLP or Limited Liability Partnership
  • The NOC which is the No Objection Certificate that has been obtained from members of LLP and the Registrar.

Further, the following papers must be submitted with Form URC-1:

  1. List of members, each with their name, number of shares held, address, and such other details as mandated or required.
  2. A list of the company’s original directors, together with data or information about them such name, DIN or Director Identification Number, address, passport number, etc.
  3. A declaration from each first director stating that they are not ineligible or disqualified to serve as directors of the company under Section 164 of the 2013 Companies Act and that the information on the documents submitted to the Registrar for the Company’s registration is accurate and full.
  4. List of the Limited Liability Partnership’s partners, including contact information such as the basic name and address.
  5. A duplicate of the Limited Liability Partnership agreement and the registration certificate, both of which must be officially attested by two LLP partners.
  6. A declaration emphasizing the following:
  • The total number of shares in the company, together with specifics on how they are distributed.
  • The total number of shares purchased as well as the total value of each share.
  • The same LLP name with the suffix Pvt. Ltd. at the last of its officially registered name.
  1. All of the LLP’s creditors must have given their written approval or issued a No Objection Certificate or an NOC.
  2. The private limited company’s account statement, fully approved by the auditor, shall be six days old at the time of application.
  3. a copy of the newspaper where the article relating to the conversion was published.

Procedure for conversion of LLP to Private Limited Company

Conversion of LLP to Private Limited Company

Details of each step of the process needed to change an LLP into a Private Limited Company are provided below:

1) Approval of Name

Obtain “Name Approval” by submitting an e-format application to the ROC (Registrar of Companies).

2) Keeping DSC or Digital Signature Certificate and DIN or Director Identification Number Safe

All seven of the company’s directors must get Director Identification Numbers (DINs) and Digital Signature Certificates (DSCs) (DIN). A request form for a DIN can be submitted on the website of the Ministry of Corporate Affairs. Through the ministry of corporate affairs’ office of the regional director, the Central Government grants approval for the aforementioned DIN application. Be careful to self-attest the form before sending it, together with identification and address documentation and one passport-size photo of the applicant.

3) Submitting Form URC-1

The applicant must create and submit Form No. URC-1 together with other necessary papers after receiving ROC permission for the name.

4) Memorandum of Association (MOA) and Articles of Association (AOA)

The Company must create its MOA and AOA when the Registrar of Companies releases the form URC-1 after the Registrar of Companies has authorized the Company’s name and carefully reviewed Form No. UGC-I.

The LLP will be changed into a Private Limited Company when the subsequent stages are finished, and the ROC will issue the Certificate of Incorporation of this new Private Limited Company.

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Which is better? Private Limited Company or LLP?

When a company’s yearly revenue is less than 40 lakh rupees and its capital contribution is less than 25 lakh rupees, an LLP is the best alternative. If an LLP (Limited Liability Partnership) meets these requirements, there is no need for annual audits. Contrarily, regardless of the company’s annual revenue, an audit of the financial accounts must be presented in the case of private limited firms.

As a result, the LLP has an advantage over private limited companies when it comes to small and developing firms. However, Pvt Ltd company registration is recommended and preferable if the turnover is greater than 40 lakhs per year because LLPs do not draw venture capitalists and investors, making the LLP structure a big no for major businesses involved in long-term growth.

Conclusion

The decision to register as an LLP or a private limited company is entirely up to the individuals or partners in the firm, as well as the business’s expansion and revenue. For LLP Registration Online in India click here www.kanakkupillai.com

FAQ on Conversion of LLP into Company

1. Can LLPs be changed to Private Limited Companies?

An LLP may be transformed into a Private Limited Company, according to a clause mentioned in Section 366 of the Companies Act, 2013, and the Company (Authorized to Register) Rules, 2014.

2. What advantages do LLPs have over Private Limited Companies?
  • Maintenance of Brand Value
  • Depreciation and unabsorbed losses carried forward
  • Offering workers an Employee Stock Ownership Plan
  • Simple Fundraising
  • distinct legal status
  • Owners’ Limited Liability.
3. How many DINS are eligible to apply using the SPICe form?

Through the SPICe form, three DIN can be applied for.

4. Can an LLP obtain financing from partners?

Under the Partnership Act, each partner is responsible for adhering to the law. According to the LLP Act, only authorised partners are accountable for statutory compliances (not necessarily in respect of other Acts). He is also able to lend money to LLP. Each partner in a firm represents both the firm and the other partners.

5. When there are more than seven partners in an LLP, how do you file the conversion form?

A scan copy of the physically created MOA and AOA must be submitted by the company if there are more than 7 partners in the LLP at the time of conversion into a company.

In the aforementioned circumstance, the corporation must submit forms 1. URC-1 and 2. INC-32. In the aforementioned circumstances, INC-33 and INC 34 are not necessary.

6. What are the advantages of registering a private limited company?

The idea of shareholders is not considered by LLP. For investors like venture capitalists and private equity investors who have no desire to participate in the administration of the company, LLPs with all of the owners being Partners are deemed undesirable. For investors, a private company is the best option. The proprietors must transform their firm into private limited company if it is expanding.

7. What are the three advantages of registering an LLP?
  • Provide the benefit of limited liability and gives them the freedom to arrange their company internally.
  • If an annual sale exceeds Rs. 40 lakhs and a capital contribution stay below the threshold of Rs. 25 lakhs, audit is not mandated.
  • Dividend Distribution Tax is not required to be paid by LLP.
8. What amount of capital is necessary for an LLP?

In LLP, there is no minimal capital requirement. The least amount of money is required to establish an LLP.

9. What is a private limited company’s drawback?

There can never be more than 50 members in a private limited business. Private limited companies cannot release prospectuses to the general public, which is another drawback.

10. Can LLP borrow money from a bank?

In contrast to a private limited business, a llp can only raise equity capital from its partners. However, debt financing options like term loans and bank overdrafts are available.

11. What is the process for converting a partnership into a private limited company?

Create a properly notarized affidavit from each partner stating that, in the event of registration, the required paperwork must be submitted to the organisation with which the firm was previously registered in order for the partnership firm to be dissolved and converted into a private limited company.

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