Conversion of Private Limited Company into LLP

Overview of LLP

 LLP is a body corporate and a legal entity being separate from its partners. It can continue its existence even after the retirement, insolvency or even death of one or more partners. LLP is an organization which acts as a hybrid between a company and a partnership firm. The concept of LLP was introduced in India by way of the Limited Liability Partnership Act, 2008. It is a form of a business that offers benefits of limited liability to partners. LLP is a legal body liable for full extent of its assets but the liability of partners is limited. It gives the freedom of a partnership firm as well as the limited liability feature of a company so that one partner is not liable for another partner’s misconduct or negligence.

This article covers the concept of conversion of private limited company into LLP. Each shareholder of the private limited company must submit a statement and consent for the conversion along with the application.

Procedure for Conversion of Company into LLP

1. Obtain Director Identification Number (DIN)

Minimum number of designated partners for formation of LLP is two out of which one must be an Indian resident. DIN is allotted only at the time of incorporation or while adding a person as a director or designated partner in a company or an LLP. DIN(Director Identification Number) will be required for those who would become designated partners of LLP. Also, it is important to apply for a DSC (Digital Signature Certificate) before applying for the DIN as digital signature is used during the process of DIN Application.

2. Meeting of Board of Directors of Company

The company must call a meeting of the Board of Directors, and then pass a requisite resolution for the conversion of the Company into LLP. Such a resolution is passed with the required majority to authorize any director to file all the necessary forms with MCA.

3. Application for Name

The company will have to apply for the name reservation of the LLP and get approval certificate from ROC.

4. Filing of Incorporation Form

The LLP must now file its Incorporation in E Form FiLLiP, along with the following documents:

   1. Address proof of office of LLP

   2. Subscription sheets

   3. Consent to act as designated partners and partners

   4. Identity proof of all partners

   5. Resident proofs of all designated partners and partners 

   6. Detail of other companies in which the LLP’s partners work as partners

5. Filing of Application for Conversion Into LLP

Form 18 must be duly filed to convert an existing company into an LLP(Limited Liablity Partnership). This form must be filed with the incorporation form. Form 18 must contain the following information:

   1. Consent of the company’s shareholders to convert it into LLP

   2.Whether all the shareholders are the partners  of LLP themselves & no one else

   3. Updated Income-tax return 

   4. Latest balance sheet and annual returns as filed with MCA

   5. Any ruling or Court order for or against the company 

   6. Whether there exists any security interest in the company’s assets

   7. Whether ROC rejected an earlier conversion application

   8. A list of secured creditors with their consent if any

Also Attachments to be filed with Form 18 to ROC:

   1. Statement of the consent of shareholders (Compulsory)

   2. Statement of accounts of the company certified as true and correct via independent auditor 

   3. List of all the secured creditors along with their consent 

   4. Copy of acknowledgement of latest income tax return (Compulsory) 

6. Certificate of Incorporation

After complying with all the formalities, ROC issues Certificate of Incorporation and Company becomes a registered LLP.

7. Drafting of LLP Agreement

    Contents of Agreement would be: 

    (i) Name of LLP 

    (ii) Name of Partners & Designated Partners 

    (iii) Form of contribution

    (iv) Profit Sharing ratio

    (v) Rights & Duties of Partners

    (vi) Proposed Business

    (vii) Rules for governing an LLP

8. Filing of E-Form-3 & E-Form-14

Form-3 contains information about the LLP Agreement entered into between the partners.  Firstly, this form is to be filed within 30 days from the date of conversion of the company into an LLP.  Then the partners must file Form-14 within 15 days of the conversion. The following documents must be attached with Form 14: 

1. Copy of Incorporation Certificate of LLP
2. Copy of E-Form FiLLiP

Tax effect on Conversion of Company into LLP

One must know the taxation consequences of conversion of Company into LLP beforehand. The conversion will not invite capital gain tax as this conversion is not a “transfer” as defined under the IT Act.

 Also, it will not attract capital gain tax subject to the following terms & conditions:

1. All the assets and liabilities of the Company become the assets and liabilities of the LLP.
2. All the shareholders of the Company become partners of the LLP.
3. The capital proportion and profit-sharing ratio of partners are in the same proportion as the company’s shareholding.
4. The shareholders do not receive any benefit, directly or indirectly in the LLP, except through capital contribution and profit-sharing ratio.
5. The total sales, gross receipts, and turnover do not exceed Rs.60 Lacs in each of the three previous years from the conversion date.
6. The aggregate value of assets as appearing in the books of accounts of the Company for each of the preceding 3 years does not exceed Rs.5 crores.

Effects of Conversion

Following are the inferences of Conversion:

1. The Private Company is dissolved after conversion.
2. The name of the Private Limited Company will be removed from the register of ROC.
3. All properties, interests, rights, assets, privileges, liabilities and obligations of the private limited company are transferred to the LLP on conversion.
4. The conversion will not have any impact on existing liabilities, obligations, agreements, contracts and continued employment.
5. Company has to inform all the authorities concerned about the conversion and make necessary changes in all the registrations and licenses as required.

Written By

CA Palak S Jain

CMO, Financial Analyst, Expertbells Consulting Pvt Ltd