Converting Your Private Limited Company into an LLP: INDIA

Converting Your Private Limited Company into an LLP: INDIA

Table of Contents

  • Introduction
  • What is an LLP? Benefits of an LLP over a Private Limited Company
  • Eligibility Criteria for Conversion
  • Companies That Cannot Be Converted into an LLP
  • Documents Required for Conversion
  • Step-by-Step Procedure for Conversion
  • Tax Implications of Conversion
  • Why Choose Filingwala.com for Your LLP Conversion?
  • FAQs on Conversion from Private Limited to LLP

Introduction

Are you considering converting your private limited company into a Limited Liability Partnership (LLP)? With relaxed compliance norms but limitation of liability advantages, LLPs are emerging as a preferred entity of choice for small and medium enterprises in India.

As per recent stats, over 2 lakh companies have already opted for LLP conversion to take advantage of operational flexibility coupled with improved profit margins.

This comprehensive guide takes you through all the nitty-gritties of private limited to LLP conversion – explaining benefits, eligibility norms, required documents, step-by-step procedural aspects as well as tax implications in detail.

So if you too are planning this switch, read on to find out everything about making a smooth transition.

What is an LLP? Benefits of an LLP over a Private Limited Company

An LLP or Limited Liability Partnership integrates the flexibility of a general partnership as well as the advantages of limited liability for its partners, similar to a Private Limited Company.

Here are some noteworthy benefits that make LLPs score over conventional private limited entities:

  • Lesser Compliance Norms: Unlike private limited firms, LLPs are not mandated to conduct meetings, prepare cash flow statements or even get their accounts audited.
  • Operational Flexibility: LLP Agreement lays down mutually-agreed governance terms among partners. Changes in partners do not impact continuity of business.
  • Lower Cost of Formation: Cost of incorporating and maintaining an LLP is significantly lesser compared to a private limited company.
  • Taxation Benefits: No DDT (Dividend Distribution Tax) or MAT (Minimum Alternate Tax) is applicable on profits of an LLP.

LLP vs. Private Limited Company – A Quick Comparison

ParameterLLPPrivate Limited Company
Compliance RequirementsLowHigh
Operational FlexibilityHighLow
Limited LiabilityYesYes
Taxation RatesLower due to absence of DDT, MATHigher
Cost of Formation & MaintenanceLowerHigher

Clearly, ease of administration coupled with tax savings make LLP conversion an appealing bet for private limited companies once they achieve significant scale.

Eligibility Criteria for Conversion

As per the Limited Liability Partnership (LLP) Act of 2008, a private company can opt for LLP conversion if it meets the following eligibility norms:

  1. There is no security interest on the company assets at the time of application
  2. No pending e-forms or statutory dues exist
  3. No charges are registered against the company
  4. All shareholders have given consent for the proposed conversion
  5. All creditors have given their approval for the conversion
  6. At least one year’s financial statements and annual return must be filed with RoC
  7. Paid-up share capital must be there in the company

Additionally, the applicant company should have filed its income tax returns up to date and must not be registered under Section 25 of the Companies Act i.e. it should not be a Section 8 company.

Companies That Cannot Be Converted into an LLP

While LLP conversion norms are relaxed, there are certain categories of private companies that do not qualify for this change:

  • Companies operating in banking/insurance/NBFC/stock broking sectors
  • Companies that have secured loans or borrowings
  • Private companies receiving foreign direct investment with performance-linked conditions
  • Entities that have opted for external commercial borrowings
  • Companies receiving FDI under automatic or government approval route

Thus, trading, manufacturing, and service sector companies with decent scale and limited reliance on institutional debt make for ideal LLP conversion candidates.

Documents Required for Conversion

To initiate the LLP conversion process for your private limited firm, keep the following documents handy:

  • Shareholder Consent: Approval from all shareholders in specified format
  • Incorporation Documents: Memorandum of Association (MoA) and Articles of Association (AoA)
  • Tax Clearances: No objection certificates from Income Tax department
  • Creditor Consent: Approval from secured as well as unsecured creditors
  • Financial Statements: Latest audited balance sheet and annual return
  • Partner Statements: Declaration from shareholders agreeing to become LLP partners

Table of Documents Required for Conversion

For CompanyFor Credit/Financial AspectsFor LLP Formation
MOA, AOACreditor ConsentDesignated Partner Consents
Board ResolutionIT ClearancePartner Proofs
Shareholder ApprovalFinancial StatementsDraft LLP Agreement

Preparing this paperwork can take 1-2 weeks depending on your company size and creditor base. Plan in advance for a smooth transition.

Step-by-Step Procedure for Conversion

The private limited to LLP conversion procedure involves 7 key steps:

Step 1) Obtain DIN for New Partners

First and foremost, the intended designated partners of the LLP must procure their Director Identification Numbers (DINs), along with Digital Signature Certificates (DSCs) which are mandatory for DIN application.

Step 2) Convene Board Meeting for Approval

Once new partners have obtained DINs, the existing company needs to conduct a board meeting for approving LLP conversion plans. The resolution must be filed with MCA in Form MGT-14.

Step 3) Apply for LLP Name Approval

You can now initiate the process of name reservation and approval by applying in Form RUN. Ensure your preferred LLP name is unique, distinct, and does not resemble any existing trade mark.

Step 4) File Incorporation Form (FORM FiLLiP)

The next step involves actual LLP incorporation by filing the FiLLiP e-form along with copy of registered office address proof, partner consents, identity-resident proofs, and details of partner interests in other firms.

Step 5) Apply for Conversion via Form 18

Form 18 is the specific application form for private limited conversions. Along with Form 18, you must submit financial statements, income tax clearance records, shareholder consents, creditor no-objection certificates, and other documents.

Step 6) Draft LLP Agreement

With incorporation formalities completed, the designated partners must draft an Agreement laying down the governance structure including roles-responsibilities matrix and profit-sharing terms among partners.

Step 7) Intimate RoC via Form 3 and Form 14

Finally, within specified timelines, the LLP must intimate MCA about the creation of LLP Agreement (via Form 3) and conversion completion (via Form 14) along with attachments.

Example LLP Conversion Timeline

StepDuration
Board Resolution and Document Collection1-2 weeks
Name Approval and FiLLIP Filing1 week
Form 18 Filing + Financial Statements2 weeks
LLP Agreement Drafting1 week
Overall Conversion Time4-6 weeks

This completes the conversion process – and your private limited company now continues operations as a limited liability partnership or LLP!

Tax Implications of Conversion

  • Tax is rarely levied on private limited to LLP conversions as it is not regarded as an asset “transfer” by the Income Tax Act
  • However, to avail tax exemption, certain pre-requisites must be fulfilled:
  1. Company assets-liabilities must fully vest in converted LLP entity
  2. Shareholders must become LLP partners with same profit-stake ratios
  3. Partner benefits must accrue purely from capital contribution and sharing ratios rather than side deals
  4. Aggregate turnover must be under Rs. 60 lakhs and asset value under Rs. 5 crores in preceding 3 years

If these conditions are met, capital gains tax and other levies can be safely avoided. Do consult an expert tax advisor to be doubly sure.

Why Choose Filingwala.com for Your LLP Conversion?

When navigating the complex private limited to LLP conversion process, expert assistance is key for a smooth transition.

Filingwala.com makes life easy through end-to-end support including drafting documents, liaising with MCA, ensuring tax optimization and hand holding till your LLP registration formalities conclude.

With a 99% success rate across 10,000+ clients served over the past decade, Filingwala.com is your safest bet for:

  • Low Cost Services: High-quality deliverables at just Rs. 4999 all-inclusive pricing
  • Quick Turnarounds: Express conversions delivered within just 4-5 working days!
  • Reliable Expertise: Seasoned lawyers and CAs with 10+ years domain experience
  • Round-the-Clock Support: Phone, WhatsApp, Email assistance for prompt query resolution

Be it company registration, accounting, trademark services or annual compliances – Filingwala assists at every milestone with full commitment to ethics and transparency.

To get started right away or clear any conversion-related doubts, call +91 70204 38881 now!

FAQs on Conversion from Private Limited to LLP

Q1. Can a One Person Company (OPC) get converted into an LLP?

Yes, OPCs can definitely opt for LLP conversion by passing a member’s resolution and submitting applicable forms with RoC approval.

Q2. Does LLP conversion alter the original company incorporation date?

No, the incorporation date remains unchanged even after conversion. The company is treated as the same continuing entity, only the form has changed from private limited to LLP.

Q3. What happens to existing Director Identification Number (DIN) after LLP conversion?

Once conversion is completed, the private company Directors automatically become LLP Designated Partners. Their existing DIN remains valid post-conversion as well without any modification.

Q4. Can audited financial statements be submitted after filing conversion forms?

While not preferred, submission of financial statements up to 60 days after filing Form 18 has been allowed by MCA under extenuating circumstances on case-to-case basis. However, all other documents must be submitted upfront without exception.

Q5. How much time does LLP conversion usually take?

If supporting documents are in order, the conversion process gets completed within just 12-15 working days from FiLLiP filing date. Our express conversion services reduce timelines even further to just 4-5 working days!

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