Overview of Conversion of LLP to Private Company
There are businesses in India that begin their journey as a Limited Liability Partnership (LLP) but now are keen on converting into a private limited company for more growth and prosperity in business.
The Limited Liability Partnership Act, 2008 has no provision related to the conversion of an LLP into a Private Limited Company, but Section 366 of the Companies Act, 2013 and Company (Authorised to Register) Rules, 2014 states that an LLP can be converted into a Private Limited Company.
LLP is good for small businesses with an annual sales turnover of fewer than Rs 40 lakhs and a capital contribution of fewer than Rs 25 lakhs. LLPs that satisfy these conditions do not have to go through an audit every year; on the other hand, a private limited company must conduct an audit of its financial statement each year. Though in case LLP has an annual turnover of Rs 40 lakhs or a capital contribution of more than 25 lakhs, the need for compliance becomes almost similar for both the private limited Company and LLP, making the owners of LLP think about converting into a Private Limited Company.
Reason for Conversion of an LLP into a Private Limited Company
The followings are the reasons for converting an LLP into a Private Limited Company:
Pre-requisite conditions for the conversion of LLLP into a private company
The conditions to be fulfilled before moving forward towards the conversion of an LLP into a Private Limited Company are as follow:
Benefits of Conversion of LLP into Private Limited Company
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Documents Required for Conversion of LLP into a Private Limited Company
The List of documents required for conversion is as follows:
The List of documents required at the time of filing the Form URC-1:
- The number of all the shares of the Company with the detail of the ratio in which they are divided.
- The number of all the shares taken and the amount that is involved in every share.
- The name of the same LLP with the addition of Pvt. Ltd. in the end.
Process of Conversion of LLP into a Private Limited Company
Here are details of each step of the procedure required for the conversion of LLP into a Private Limited Company:
- Name Approval
Obtain ‘Name Approval’ from the ROC (Registrar of Companies) by giving an application in e-format.
- Securing DSC And DIN
It is necessary for all the seven directors of the Company to obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN). DIN can be obtained by filing an application form on the Ministry of Corporate Affairs portal. The Central Government approves the said application of DIN through the office of the regional director, the ministry of corporate affairs. Before submitting the form, make sure to self-attest it along with address proof and identity proof with one passport size photo of the applicant.
- Filing Of Form URC-1
Once the approval of the name has been obtained from the ROC, the applicant is required to prepare and file Form No URC-1 along with the all required documents.
- Memorandum Of Association and Article of Association
Once the name of the Company is approved, and the Registrar scrutinises the Form no. UGC-I, the Registrar of Companies, issues the form URC-1; the Company needs to form its MOA and AOA.
After the following steps are completed, the LLP will be converted into a Private Limited Company, and the ROC will issue the Certificate of Incorporation of such a new Private Limited Company.
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Frequently Asked Questions
- Gives the advantage of limited liability and also provides flexibility to organize their firm internally.
- Audit is not needed if an annual sale is more than Rs 40 lakhs and capital contribution does not cross the limit of Rs 25 lakhs.
- LLP is not bound to pay Dividend Distribution Tax (DDT).
In case of more than 7 partners in the LLP at the time of conversion into Company then Company have to file Scan copy of physically prepared MOA & AOA.
In above mentioned situation company have to file 1. URC-1 and 2. INC-32. No need of INC-33 and INC 34 in the above mentioned situations.
- Preservation of Brand Value
- Carry forward of unabsorbed losses and depreciation
- Employee Stock Ownership Plan to employees
- Easy Fund Raising
- Separate Legal Existence
- Limited Liability of Owners