YOUR LEGAL EXPERT

Overview of Conversion of LLP to Private Company

There are businesses in India who 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. 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.

Choice of LLP vs Private Limited Company

LLP is majorly suitable for small businesses that have 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 the audit every year, on the other hand, it is necessary for a private limited company to 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 become almost similar for both the private limited company and LLP, forcing the owners of LLP to convert into a Private Limited Company.

Corporatization has become the need of the current market situation. We live in a world where the ulterior goal of every market is to drift towards one global market removing the barriers between the countries. There are many start-ups and entrepreneurs who are eager to step into corporatization.

Benefits of Conversion of LLP into Private Limited Company

Preservation Of Brand Value

Conversion of LLP into Private Limited Company facilitates business entities to continue the brand name without making any further efforts on brand advertisements

Carry Forward of Unabsorbed Losses And Depreciation

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 entity

Employee Stock Ownership Plan to Employees

Conversion of LLP to Private Company facilitates Companies to offer stock ownership and ESOP plans. Such plans help companies to attract efficient employees, as it offers incentive plans for them to work in the company.

Separate Legal Existence

Conversion of company facilitates the separate ownership and management to pay attention to their potential work. The Shareholders assign responsibility to run and operate the company without losing control in form of voting.

Limited Liability of Owners

Conversion prohibits the liability of the owners only to the capital subscribed and unpaid by them.

Reasons for LLP Registration

Making small businesses aware with the concept of LLP.

Easy to commence and control

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).

It is not necessary for a LLP to conduct Board meeting or annual meeting.

Registration process of LLP is simple as compared to Private Limited Company.

Reasons for Private Limited Company Registration

LLP does not entertain the concept of share holders. 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.

FDI is becoming popular in Indian market. A private limited company does not require any approval from the government authorities for FDI while government approval is much needed for FDI in LLP.

DOCUMENTS REQUIRED

Following documents are required for Conversion of an LLP into a Private Limited Company-

Documents required at the time of filing of Form URC-1

Details such as name, address and shares held by the members along with the member’s list.
Furnish the details such as Name, Address, DIN, passport number along with an expiry date of all the directors of the Private Limited Company.
Also, file all mandatory documents with the Registrar of Companies for the registration of the company
Copy of Limited Liability Partnership agreement with a list attached mentioning the name and address of the partners of LLP and a certified copy of registration which is duly verified by at least two designated partners of LPP is required.
The statement with the details of the nominal share capital of the firm and the number of shares separated the number of shares taken and the amount remitted for each share and the name of the firm with the word private limited to be provided.
No-objection certificate from all the creditors has to be provided.
Duly certified accounts statement of the company by the current auditor or CA in practice.

Documents required in Spice+ form

Scanned Copy of:

PAN & Aadhaar of all the Subscribers/Directors
Passport size photograph of all the Subscribers/Directors
Specimen Signature of Authorised Signatory
Utility Bill of Registered office address (Not older than 2 months) (Electricity bill preferred)
No objection certificate from legal owner of Registered office address (Format to be provided by Yourlegalexpert.in)
Driving License or Passport or Voter’s ID (Any one of it) of every Subscribers/Directors
Latest Bank Statement (without password protection) or Electricity Bill or Mobile Bill or Telephone Bill of every Subscribers/Directors. (Any one of it) (Not older than 2 months)

Information Required:

Email Id & Phone No. of all Subscribers/Directors
Highest Qualification of all Subscribers/Directors
Place of Birth of all Subscribers/Directors
Number of Months/Years of stay at current address
Main Business Objects of Proposed Company
Capital Contribution and shareholding division

YOURLEGALEXPERT.IN PROCEDURE FOR CONVERSION OF ENTITIES

Conversion of an entity is very detailed procedure, which requires keen knowledge, procedure and team of professionals. Each Company incorporation has its tailored requirements. We at Yourlegalexpert.in have a full-fledged, dedicated team of professionals. You are required to fill the form and then our experts will reach out to you, to know the exact requirement and gather further information. Then our experts at YOURLEGALEXPERT.IN will be at your disposal for assisting you with guidance concerning Conversion of your entity and its compliances. Our professionals will assist you in planning seamlessly at the least cost, confirming the successful conclusion of the process. We shall guide you with Do’s and Don’t’s as well. We will begin working on your request once all the information is provided, and the payment is received.

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Frequently Asked Questions

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Can we convert LLP to Private Limited Company?

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.

Is LLP better than 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.

What is the benefit of Private Limited Company Registration?

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.

What is the benefit of converting LLP into Private Limited Company?

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

CONVERSION OF LLP TO PRIVATE LIMITED