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:

• LLP converts into a private company for growth and to extend its existing business.
• LLP can attract only a few types of investors, so to attract more investors, such as foreign investors or equity investors, they go for conversion.
• The LLP is converting for issuing equity share capital in the private limited Company.
• One of the reasons for conversion is to avoid capital tax gain. 
• To carry forward all the unabsorbed losses and depreciation of the last year.
• For continuing with the same brand name and goodwill of their LLP, the LLP decides to convert into a 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:

• The Limited Liability Partnership must have at least two partners who are required for incorporation of a Private Limited company.
• All the partners should have approved the conversion of LLP.
• The LLP should have complied with all the required returns.
• Publication related to such conversion of LLP into a Private Company, in at least two newspapers, one in English Language and another in any regional language newspaper of the place of registered office.
• No Objection Certificate from the Registrar. 

Benefits of Conversion of LLP into Private Limited Company

• Conversion of LLP into a Private Limited Company facilitates business entities to continue the brand name without making any further efforts on brand advertisements.
• In a Private Limited company there, 100% Foreign Direct Investment (FDI) is allowed; thus, any foreign investor (entity or person) can directly invest in the Company. 
• After the conversion, no expenditure will be incurred on bookkeeping, as the losses and depreciation incurred in LLP will be carried forward on the conversion of the entity.
• Conversion of LLP to Private Company facilitates Companies to offer stock ownership and ESOP plans. Such plans help companies attract efficient employees, as it provides incentive plans for them to work in the Company.
• A Private Limited Company or Public Company can only raise funds from venture capitalists or angel investors, and if the company registration process is strict, it helps the company structure to be more credible, among others. This leads to easy fundraising from external sources.
• Conversion prohibits the liability of the owners only to the capital subscribed and unpaid by them.
• There is no capital gain tax in a private limited company.
• Existing LLP has just replaced y the Private Limited Company by adding the “Pvt. Ltd.” at the end of its name.

Documents Required for Conversion of LLP into a Private Limited Company

The List of documents required for conversion is as follows:

• Address Proof of the applicant
• Identity Proof of the applicant
• Passport size photographs of the applicant
• Copy of latest returns file by the Limited Liability Partnership
• The NOC was obtained from members of LLP and the Registrar.

The List of documents required at the time of filing the Form URC-1:

• List of members with their details such as name, address, the share held by them, etc.
• List of the persons who are first directors of the Company along with their details such as name, address, DIN, Passport number, etc.
• An affidavit from all first directors that he is not disqualified from being a director of the Company under section 164 of the Companies Act, 2013 and that the documents submitted to the Registrar for registration of the Company have true and complete information.
• List of partners of the Limited Liability Partnership along with their details such as name, address, etc. 
• A copy of the Limited Liability Partnership agreement and certificate of registration which are duly verified by at least two members/partners of the LLP. 
• A statement indicating the followings:

1. The number of all the shares of the Company with the detail of the ratio in which they are divided.
2. The number of all the shares taken and the amount that is involved in every share.
3. The name of the same LLP with the addition of Pvt. Ltd. in the end.

• The written consent or No Objection Certificate (NOC) from all the creditors of the LLP.
• The account statement of the private Limited Company duly certified by the auditor should be six days preceding the date of application.
• A copy of the newspaper in which the publication related to such conversion has been made. 

Process of 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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