Conversion of LLP Into Company

LLP was first time introduced in the year 2008. It is a new corporate business form in India. It has become a popular form of business among entrepreneurs. It has inculcated various benefits of both the form of organisation.

Individual partners are also protected from joint liability resulting from the wrong business decisions or misconduct of another partner, as no partner is responsible for the independent or unauthorised actions of other partners.

Mutual right and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership structure’ LLP is called a hybrid between a company and a partnership.

Benefits oF LLP Company

1. There is no minimum capital requirement to form a LLP

2. The liability of the partners are limited to the extent of his/her contribution to the LLP. The personal property of the partners is protected from any liability incurred by LLP

3. Being a body corporate it has a separate existence form its partners.

4. It has a lesser cost of registration as compared to a Company.

5. The liability of the partners is limited to the contribution in the LLP

6. Being a separate entity it capable of entering into contracts and holding property in its own name.

Benefits of Conversion Of LLP Into Company

1. By conversion company can retain and can take forward the earned reputation of the LLP. Trademark, Copyright or any other IPR rights that LLP owned can be transferred to the company

2. Under Income Tax Act, 1961 the unabsorbed losses or depreciation of the LLP can be transferred to the newly converted company.

3. Raising fund is easy for a company as it can allot shares through ESOPs, private placement, IPO (in case of unlisted public company).

4. When LLP is converted to Company its assets also get transferred, but there shall not be any capital gain tax levied on such transfer.

5. LLP can attract only few types of investors, while company can attract foreign investors, equity investors etc.

PROVISIONS GOVERNING THE CONVERSION

The Limited Liability Partnership Act, 2018 does not cover the provision of conversion of LLP into Company. But Section 366 of the Companies Act, 2013 and Company (Authorized to Register) Rules, 2014 governs the conversion of LLP into Company.

PRE-REQUISITES CONDITIONS FOR CONVERSION

1. LLP must have two partners to incorporate a private limited company and at least 7 members to incorporate a unlisted public company.

2. All the partners should have given the consent for conversion

3. A No Objection Certificate from the Registrar of Companies (ROC) where the registered office of LLP is situated.

4. Advertisement of Conversion of LLP into company must be done in form URC-2 in two newspapers, one in English language and other in regional language newspaper where the registered office of the company is situated.

Procedure for Conversion of LLP into Private/ Unlisted Company

Here is the procedure of Conversion of LLP Into Private and Unlisted Company are as follows:

1. Name Approval

The first step is to obtain the name approval letter from Registrar of Companies (ROC) by applying in RUN Form. And if the ROC accepted the application, it will be valid for 60 days.

2. Securing DSC and DIN

In case of conversion of LLP into unlisted public company where there should be atleast 7 members, and if all 7 members are future directors after conversion, and they do not have Digital Signature Certificate (DSC) and Director Identification Number (DIN) than all 7 future directors need to obtain DSC and DIN. For obtaining DIN an application in form DIR-3 must be filed with MCA. The application shall be processed and approved by the MCA and after such processing only DIN is allotted to the Director.

The e form DIR-3 must be accompanied by:

• self-attested copy of identity proof (PAN /Voter ID/ Aadhar/ Passport)
• self-attested copy of address proof (Bank Statement/ Telephone Bill/ Electricity Bill/ Water Tax Bill)
• 1 recent copy of passport size photograph

3. Filing of Form URC-1

After the above two steps, the applicant must now file form URC-1 along with the following documents:

1. List of members containing details of their names, address, shares held by them etc.

2. List of first directors of the company containing details of their names, address, shares held by them, DIN, PAN, Passport Number etc.

3. An affidavit by every person proposed to be the First Directors of the so converted company that he is not banned under Section 164.

4. A list containing the names and addresses of the all the partners of the LLP along with a copy of the LLP agreement & certificate of registration duly verified by the two Designated Partners of LLP must be enclosed with the list.

5. A statement indicating the following:

• No. of shares of the company along with the ratio into which they are divided
• No. of shares taken and the amount paid for each such share
• The of the company, with the addition of words “Limited” or “Private Limited”

6. A NOC i.e., no objection certificate from all creditors of the LLP regarding conversion

7. Statement of accounts of the LLP which must not be 6 days preceding the date of application and it must be duly certified by the auditor

8. Copy of the newspaper advertisement

4. Memorandum of Association and Articles of Association

Once the Name is approved and form URC-1 has been filed and approved by the ROC. The newly converted Company should form its Memorandum and Articles of Association.

After following the above steps, LLP is converted into Company and ROC will issue new Certificate of Incorporation of such newly formed Private/ Unlisted Public Company.

Conclusion

This conversion process provides certain tax benefits, however for availing the same several additional requirements need to be made, for example, maintain the same shareholding by the partners as was in the previous LLP when conversion takes place, for a period of five years from the conversion the former partners of such LLP who are now shareholders in the newly formed company cannot in total have shareholding less than 50%.

 

At onlinexbrl.com you will get quick solutions with a hassle-free process for coversion of LLP into Company.