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
Book a Free Consultation
Get response within 24 hours
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:
A statement indicating the followings:
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:
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.
CorpBiz Assistance in converting a LLP to a Private Limited Company
Frequently Asked Questions
Provision mentioned in the Section 366 of the Companies Act, 2013 and Company (Authorised to Register) Rules, 2014, says that an LLP can be converted into a Private limited Company.
It offers limited liability, offers tax advantages, can accommodate an unlimited number of partners, and is credible in that it is registered with the Ministry of Corporate Affairs (MCA). At the same time, it has less compliance than a private limited company and is also significantly cheaper to start and maintain.
File an affidavit, duly notarised, from all the partners to provide that in the event of registration, necessary documents or papers shall be submitted to authority with which the firm was earlier registered, for its dissolution as partnership firm consequent to its conversion into private limited company.
Unlike private limited company, you cannot raise equity funding in llp from any person other than its partner. However debt funding such as term loan, overdraft from bank is possible.
In a private limited company the number of members in any case cannot exceed 50. Another disadvantage of private limited company is that it cannot issue prospectus to general public.
There is no minimum capital requirement in LLP. An LLP can be formed with the least possible capital.
- 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).
LLP does not entertain the concept of shareholders. All the owners in a LLP are considered as Partners in the LLP and are considered as unsuitable for investors such as Venture Capitalists and Private Equity investors who do not possess any desire to indulge in the management of the Company. Private Company is the best choice for investors. If the business is growing then the owners must convert it into a private limited company.
All partners are liable for statutory compliances under Partnership Act Only designated partners are liable for statutory compliances as are required under LLP Act (not necessarily in respect of other Acts). He can also give loans to LLP. Every partner of firm is agent of firm and also of other partners.
- 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 and 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.
Three DIN can be applied through SPICe form.
- 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