Conversion of Private Limited Company into LLP

A Private Limited Company (PLC) offers limited liability to its shareholders, has a separate legal entity, and allows shares to be transferred. In contrast, a Limited Liability Partnership (LLP) combines partnership flexibility with limited liability protection, having partners instead of shareholders and no shares. While PLCs typically have stricter regulatory requirements compared to LLPs, understanding the company registration fees in India is crucial when deciding between the two structures.

Documents required for conversion of company into LLP

To convert a private limited company into a Limited Liability Partnership (LLP), certain documents are necessary. These ensure a smooth transition and legal compliance. Here are the required documents:

1. Incorporation document: Copy of the incorporation certificate of the existing company.
2. Board resolution: Resolution passed by the company’s board approving the conversion.
3. Consent of shareholders: Written consent from all shareholders of the company.
4. Statement of accounts: Latest financial statement certified by a chartered accountant.
5. IT returns: Acknowledged copy of the latest income tax return.
6. Partner’s details: Details and consent of proposed partners of the LLP.

For a comprehensive understanding of business structures and requirements, refer to the relevant resources.

For additional guidance on the process of converting a private company to a public limited company, explore this detailed resource.

Eligibility criteria for conversion of company into LLP

Converting a company into a Limited Liability Partnership (LLP) is subject to specific eligibility criteria to ensure compliance with legal standards and smooth transition. The key eligibility criteria are:

1. Existing company: The entity must be either a private limited company or an unlisted public company.
2. Shareholder consent: All shareholders of the company must unanimously agree to the conversion. This ensures that the decision is collectively approved, maintaining harmony and consensus among stakeholders.
   
3. No default: The company should not have any outstanding loans, whether secured or unsecured. Clearing all debts and obligations is crucial before the conversion process.
4. Compliance: The company must have filed all due tax returns and financial statements. This compliance ensures that the entity is in good standing with regulatory authorities.
5. Minimum partners: The LLP should have a minimum of two partners post-conversion. This is a mandatory requirement to maintain the LLP's legal status.
   

For more on ensuring compliance, you can check how to register a company in India and start your business journey with confidence.

Fee payable for conversion of company into LLP

The conversion of a company into a Limited Liability Partnership (LLP) involves certain fees essential for legal compliance and registration. These fees ensure that all procedural and legal formalities are adequately covered, facilitating a seamless conversion process.

1. Application fee: A fee is payable when submitting the conversion application to the Ministry of Corporate Affairs (MCA). This fee covers the administrative costs of processing the application and ensuring all criteria are met.
2. Stamp duty: The applicable stamp duty on the LLP agreement varies by state. This duty is necessary for the legal validation of the LLP agreement, making it a binding document.
3. Professional fees: Charges for professional services like those of chartered accountants or company secretaries are incurred during the conversion process. These professionals assist in preparing and verifying documents, ensuring compliance with legal requirements, and providing expert advice.
4. Filing fees: Fees for filing necessary forms with the Registrar of Companies (ROC) are also required. These forms include the conversion application and other mandatory submissions to complete the process.

Explore the details of limited liability company structures to understand how they differ and their associated costs.

These fees collectively ensure that all legal and procedural aspects of the conversion are covered, promoting a smooth and compliant transition from a private limited company to an LLP. Proper financial planning for these expenses is crucial for a hassle-free conversion process.

Certificate of registration

Upon the successful conversion of a company into a Limited Liability Partnership (LLP), the Registrar of Companies (ROC) issues a Certificate of Registration. This certificate is crucial for the legal recognition of the new LLP.

1. Issuance: The Certificate of Registration is issued after all necessary documents and fees are submitted and verified by the ROC. This process ensures that the conversion has met all legal and regulatory requirements.
2. Significance: The certificate serves as official proof of the legal existence of the LLP. It confirms that the entity has been duly registered under the Limited Liability Partnership Act and is now recognized as an LLP by law.
3. Usage: The certificate of registration is required for various operational and legal activities. It is necessary for opening bank accounts in the name of the LLP, which facilitates financial transactions and management. Additionally, the certificate is essential for signing contracts and entering into agreements, as it provides legal credibility to the LLP. Furthermore, it is needed for conducting business activities, ensuring that the LLP operates within the legal framework.
   

Refer to how to check company name availability in India for a critical step in the registration process.

Taxation on the conversion of a company into an LLP

The conversion of a company into a Limited Liability Partnership (LLP) involves specific tax implications that must be considered:

1. Capital gains tax: No capital gains tax is levied on the transfer of assets and liabilities from the company to the LLP. This tax exemption facilitates a cost-effective transition.
2. Carry forward of losses: The LLP can carry forward and set off the unabsorbed depreciation and losses of the company. This provision helps in maintaining the tax benefits accumulated by the company, ensuring continuity in tax relief.
3. MAT credit: Any Minimum Alternate Tax (MAT) credit available to the company is not transferred to the LLP. This means that the LLP cannot utilise the MAT credit accumulated by the company before conversion.

These tax considerations ensure a tax-efficient transition, minimising the financial impact on the business and maintaining tax benefits where possible. Proper planning and consultation with tax professionals are advisable to navigate these implications effectively.

Procedure for conversion of company into LLP

The conversion process involves several steps, ensuring a legally compliant transition from a company to an LLP:

Step 1: Obtain Director Identification Number

The first step in converting a company to an LLP involves obtaining or updating the Director Identification Number (DIN) for all designated partners:

1. Application: Apply for DIN through the MCA portal if not already obtained.
2. Update: Ensure existing DINs are updated with correct details.
3. Verification: The DIN application is verified and approved by the MCA.

This step ensures that all partners are officially recognized and can legally manage the LLP.

Step 2: Board meeting

Conducting a board meeting is a crucial step in the conversion process:

1. Agenda: Approve the conversion of the company into an LLP.
2. Resolution: Pass a resolution to authorise the conversion and appoint partners.
3. Minutes: Record the minutes of the meeting, documenting all decisions taken.

This meeting formalises the decision and ensures that all directors are on board with the conversion plan.

Step 3: Attach documents

The next step involves attaching and preparing all necessary documents for the conversion application:

1. Board resolution: Attach a copy of the board resolution approving the conversion.
2. Shareholder consent: Obtain and attach written consent from all shareholders.
3. Financial statements: Include the latest financial statements certified by a chartered accountant.

These documents are essential for verifying the company’s compliance and readiness for conversion.

Step 4: Filing of application for conversion into LLP

Filing the application for conversion is a critical procedural step:

1. Form submission: Submit Form 18 along with necessary attachments to the ROC.]
2. Fee payment: Pay the applicable conversion fee.
3. Verification: The ROC verifies the submitted documents and forms.

This step officially initiates the conversion process and sets the stage for obtaining the incorporation certificate.

Step 5: Certificate of incorporation as LLP from ROC

Once the application is verified, the ROC issues the Certificate of Incorporation as an LLP:

1. Issuance: ROC issues the certificate, confirming the conversion.
2. Legal Status: The certificate serves as legal proof of the entity’s new status.
3. Documentation: It is essential for further compliance and operational activities.

This certificate is a significant milestone, marking the successful transition of the company into an LLP.

Step 6: Filing of E-Form-3

The final procedural step is filing E-Form-3, which pertains to the LLP agreement:

1. Submission: File E-Form-3 within 30 days of receiving the incorporation certificate.
2. Agreement details: Include details of the LLP agreement outlining the rights and duties of partners.
3. ROC verification: The ROC verifies the form and agreement details.

This step ensures that the LLP agreement is officially registered and recognized by the authorities.

Conclusion

Converting a company into a Limited Liability Partnership (LLP) involves a systematic process that ensures legal compliance and operational continuity. This conversion provides several advantages, including limited liability for partners and various tax benefits, making it an attractive option for many businesses. The structured approach ensures a smooth transition, allowing the LLP to operate effectively within the legal framework. By converting to an LLP, businesses can enjoy the flexibility of a partnership while benefiting from the legal protections of a corporate structure. For more details on securing a business loan to support your new LLP, visit the linked resource. This can provide the necessary financial backing to facilitate the conversion process and support the initial operations of your LLP, ensuring a strong start for your newly formed business entity.