All you need to know if you wish to convert your Private Limited co. to LLP

In the past few years, Many Private Limited Company has shut down its business due to higher compliance formalities, regulatory burden and unlimited liability of the members. But with the enactment of the Limited Liability Partnership Act, 2008, an easy and accessible option for such shutting down companies is to convert themselves into an LLP. In this blog information such as how to convert your Private Limited co. to LLP, and other related information is included.

Private Limited Company

A Private Limited Company is a company which is privately held for small businesses. The liability of the members of a Private Limited Company is limited to the amount of shares respectively held by them. Shares of Private Limited Company cannot be publicly traded.

Limited Liability Partnership

A limited Liability Partnership means a business where minimum two members are required and there is no limit on the maximum number of members. The liability of the members of an LLP is limited.

Conversion of Pvt Ltd to LLP

Let us have a look at every important aspect of the conversion of Private Limited Company to an LLP:

Conditions to fulfil for conversion of Private Limited Company to LLP

• Each member of the company requires agreeing with the choice of conversion.
• All members of the Private Limited Company will become the partners of the LLP.
• The most up-to-date copy of Income tax return must be filed with the Registrar of Companies.
• Not only the members, but also all the creditors of the private company must agree with the conversion.
• According to the Companies Act, no prosecution should start any process to be followed.

Documents required for convert your Private Limited co. to LLP

• Consent of each of the shareholders of the company for conversion of the firm into LLP in the given format.
• Incorporation document in E Form FiLLiP
• Form 3- Form of application and declaration of incorporation of an LLP.
• Clearance/no-objection certificate from tax authorities.
• Statement of assets and liabilities from the company.
• List of all the creditors along with their consent.
• Approval from any other country.
• Authorization to make a declaration.
• Optional attachments, if any.

Process of Conversion of a Pvt Ltd Co. to an LLP

• Obtain DIN
• Conduct a Board Meeting
• Application for Name availability
• Draft Limited liability partnership agreement (LLP Agreement)
• File E- form FiLLiP (Filing of Incorporation Documents)
• File E-form 18 (Application for conversion)
• Obtain Certificate of Registration (Form 19)
• File E Form 3 ( Information of LLP Agreement)
• Certificate of Incorporation as LLP
• Filing of E Form 14 (Intimation to ROC)

1. Obtain DIN:

The first step towards conversion of a Private Limited Company to an LLP is to obtain DIN for the designated partners who don’t have one.

The minimum number of partners for the incorporation of an LLP is two and also one of them must be Indian. But it is very important to file for a DSC before applying for the DIN.

2. Conduct a Board meeting:

The next step will be to call for a board meeting of all the board members with following purposes:

• To Pass Resolution for Conversion of a Private Limited Company into LLP.
• To Pass Resolution to authorize any director to Apply for Name of LLP.

3. Application for Name availability

An application is to be made to reserve the name of an LLP. An application can be made for reserving the name of a new LLP or for changing the name of an existing LLP. The name of the company can be changed into the name of the LLP.

4. Draft Limited liability partnership agreement (LLP Agreement):

An LLP agreement is a written document defining the agreement between the partners of a Limited Liability Partnership. It defines the rights and duties of all the partners towards each other and towards the firm.

Contents of Agreement are

• Name of LLP
• Name of Partners & Designated Partners
• Form of contribution
• Profit Sharing ratio
• Rights & Duties of Partners
• Proposed Business
• Rules for governing the LLP

5. File E- form FiLLiP (Filing of Form of Incorporation)

Incorporation Document along with the proof of address of registered office of LLP (Signed by each Designated Partner and witnessed by Profession to be filled in E Form FiLLiP. 

File E Form FiLLiP with ROC along with following Attachments:

• Address proof of the registered office of LLP. 
• The subscription sheets. 
• Consent to act as a designated partners and partners
• Identity and Resident proofs of designated partners and partners 
• Detail of LLP(s) and/ or company(s) in which partner/ designated partner is a director/ designated partner.

6. File E-form 18 (Application for conversion):

With Form 2, one other form is to be filed. This form is E Form 18 which is a sole form to be filed for the conversion of a Pvt Ltd Co. to an LLP. This Form is to be filed with the following attachments:

• Statement of the consent of shareholders (Mandatory) 
• Statement of accounts of the company certified as true and correct by the independent auditor 
• List of all the secured creditors along with their consent 
• Copy of acknowledgement of latest income tax return (Mandatory)

7. Obtain Certificate of Registration (Form 19):

After all formalities and filings have been complied with by the applicants and approved by the Ministry, the Registrar of LLP will issue a Certificate of Registration in form no. 19 as to conversion of the LLP. The Certificate of Registration issued shall be the conclusive evidence of conversion of the LLP.

8. File E Form 3 ( Information of LLP Agreement):

This form provides information about the LLP Agreement entered into between the partners. This form is to be filed in 30 days from the date of conversion of the company into an LLP. 

Attachment Required: LLP Agreement 

9. Certificate of Incorporation as LLP:

The next step would be to obtain the Certificate of Incorporation as an LLP.

10. Filing of E Form 14 (Intimation to ROC):

After receiving incorporation certificate of LLP it has to be filed within 15 days of the date of conversion.  

Attachments to be filed along with E-Form 14:

• Copy of Certificate of Incorporation (COI) of LLP. 
• Copy of incorporation document submitted in E-Form FiLLiP  to ROC.

Effect of Conversion of Private Limited Company to LLP

The following are some of the implications due to the conversion of a company into a LLP:

• The private company is dissolved after conversion. 
• The name of the private limited company will be removed from the register of the ROC. 
• The conversion will not affect existing liabilities, obligations, agreements, contracts and continued employment. 

Company has to intimate all the authorities concerned about the conversion and make necessary changes in all the registrations and licenses.

Benefits of conversion of Private Limited Company to an LLP

• It contains the benefit of Limited liability to partner and Flexibility of Partnership.
• On the conversion of a private limited company into LLP, all assets and liabilities of the company will convert into those of the LLP. However, no instrument of transfer required. Hence there will not be any stamp duty implications on such transfers as well.
• There is no limit to the number of partners; which is not so in case of private limited companies.  
• There is no compulsion on holding a minimum number of meetings and maintaining statutory records. 
• LLP is a corporate body and granted the legal status same as that of a company.
• Unlike the partnership in LLP the liability of the partner is limited up to the contribution made by them
• other benefits after conversion, such as, lighter regulations, no limit to the number of partners in LLP, etc.

Not only this but there are some benefits available under the income Tax law as well. They are as under:

• Saving of Dividend Distribution Tax. (There is no provision of Dividend Distribution Tax in LLP)
• Saving of MAT Tax. (Because LLP don’t give credit of MAT)
• Saving of Income Tax due to Interest and remuneration payable to partners as salary payable to directors.

To make your decision easy you may consider reading the article on: LLP Vs Pvt Ltd – A comparison between two important forms of organisation in India