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Conversion of LLP into Private Limited Company

An LLP is the simplest form of Incorporated Business in India that is easy to start and lighter on the compliance aspect compared to the company form of organisation. There is no hard and fast rule whether a business should begin as LLP or a Private Limited Company. As per the Law, there is no restriction on the kind of business you may do in the LLP form of business. However, it is presumed that the LLP form of business is very well suited for professionals such as Architects, Doctors, Engineers, CA, CS and Lawyers.

Due to fewer compliance requirements, small businesses and startups prefer a Limited Liability Partnership (LLP) over a Private Limited. In the case of LLP, the statutory audit by CA is required only when the turnover of the LLP is more than 40 Lakhs or where the capital is over Rs. 25 Lakhs. In other words, when the LLP grows, the compliance requirement is similar to that of a Private Limited Company. Further, the LLP is investor-friendly, and for every small change in the ownership, the LLP agreement has to be changed. In contrast, the shareholding changes can be done easily in a Private Limited Company. For these reasons, many LLP converts as Private Limited Company; Setindiabiz Provides end to end service about the conversion of the LLP into a Pvt Ltd Company.

Change in Partners of LLP

Benefits of Conversion From LLP to a Private Limited Company

There may be several reasons why an LLP should convert as a Private Limited Company; however, primarily, the growing business finds it suffocating to continue as LLP and eventually convert the business into an LLP. The one way to get into a Private Limited company may be to close the existing LLP and incorporate a New Private Limited Company. The other better method is to convert the existing LLP into a Private Limited Company. Here is an indicative list of the benefits that the LLP

Step - 1: Retain and Grow the Brands:

Retain and Grow the BrandsBy way of conversion from the LLP, the new resulting private limited company continues with the LLP’s legacy and does not lose the reputation that the LLP earned. The IPR Rights of the LLP is transferred to the private limited company without any capital gain.

Step - 2: Carry Forward the accumulated losses and Depreciation:

Carry Forward the accumulated losses and DepreciationUnder the Income Tax Act, the unabsorbed losses or the Depreciation of the LLP gets transferred to the new private limited. This is one of the significant benefits of LLP Conversion to the Company.

Step - 3: Ease in Fund Raising:

Ease in Fund Raising

The investors prefer a Private Limited Company for ease of allotment of shares and specific legal provisions like valuation and private placement. Further, the details of the private limited company are verifiable at MCA.

Step - 4: ESOP To Employees:

ESOP To Employees The growing companies need to give Employee Stock Options to retain the talent; it is very much popular in the It Sector. The ESOP is possible only in a Company form of organisation, where there is specific law requiring the ESOP Plan to be registered with the registrar of companies.

Step - 4: No Capital Gain Tax:

No Capital Gain Tax The assets of the LLP is transferred to the converted private limited company, and there shall not be any capital gain tax levied on such transfer as a result of conversion from the LLP to a Company. Please note that the existing LLP is replaced by a Company, hence no capital gain tax.

Eligibility Requirement For Conversion of LLP to Company

  1. The LLP must have at least two partners for its conversion as a Private Limited Company
  2. All Partners must agree to the conversion from LLP to Company.
  3. The LLP must have filed all its statutory returns and LLP agreement.
  4. The exact name of the LLP shall continue, and the word “LLP” shall be substituted by “Private Limited.” No change of name is permitted.
  5. The Contribution in the LLP shall become the Capital for the company, and all partners of the LLP will become shareholders in the company.

Legal Provision

 

Law or Form Particulars
Law Section 366 of the Companies Act, 2013
Form URC-2 Format for Newspaper Publication
RUN For filing Name Reservation Application
Form URC-1 Application for Conversion from LLP to Company
Spice+ Form For new Company Certificate of Incorporation
DIR-2 Consent of Directors

 

List of Documents Required for Conversion of LLP into Company

 

A. List of attachments in Form URC-1
  1. List of Partners along with their detailed particulars
  2. Declaration of directors confirmatory the particulars of all partners
  3. An affidavit from all the partners for dissolution of the entity
  4. Newspaper advertisement
  5. Certificate of registration of the LLP
  6. LLP Agreement
  7. Statement of Assets & Liability Certified by CA
  8. Income Tax Return Copy of the LLP
  9. Newspaper Advertisement (URC-2)
  10. NOC From the Creditors
  11. NOC From the ROC where the LLP is registered
B. List of attachments in E-form Spice+
  1. DIR-2 declaration from all directors
  2. Identity and Address Proof of Directors
  3. Proof of Registered Office
  4. NOC from the owner of the premises

Step-Wise Process To Convert an LLP into a Company.

Step - 1: Consent of all Partners of the LLP

Consent of all Partners of the LLP

The process starts with a meeting of Partners to secure approval of all partners to the proposed conversion of LLP into a Private Limited Company according to section 366 of the Companies Act, 2013. In the partners meeting, two partners need to be authorised to sign and execute all papers to convert LLP into a company.

Step - 2: Newspaper Publication

 

Newspaper Publication

The intent to convert from an LLP to a company needs to be published in two newspapers, having circulation in the district, one in vernacular language and the other in an English daily. The public announcement in the newspaper must be made 21 clear days from the filing of URC-1.

Step - 3: NOC From the ROC and Creditors

NOC From the ROC and Creditors

The NOC from the ROC, where the LLP Registered is required, and the Creditors must give their unconditional No Objection to the conversion of the LLP. If there is no Liability in the LLP, then a statement signed from the partners that there is no liability would be required.

Step - 4: Apply for Name Reservation of Company in RUN

Affidavit & Indemnity Bond of All Directors

RUN is an online form in which an application for the name reservation is filed to the ROC. No change in the name of the LLP is allowed at this stage; the words LLP shall be substituted with “Private Limited.”

Step - 5: Efile URC-1, MOA, AOA, DIR-2 Forms and Spice Plus

Efile URC-1, MOA, AOA, DIR-2 Forms and Spice Plus

Finally, within 30 Days of the name reservation of the LLP, the application for conversion of the LLP into a company shall be filed in URC-1 along with the Spice Plus form, e-MOA, E-AOA and other documents. After the approval of the forms, the ROC issues a new certificate of incorporation in the company’s name.

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