LLP Conversion

Convert LLP to Private limited company and vice versa, Convert regular partnership Firm to LLP

WHAT ARE THE TYPES OF LLP CONVERSION

LLP CAN BE CONVERTED INTO FOLLOWING THREE DIFFERENT WAYS.

1) LLP INTO COMPANY

2) COMPANY INTO LLP

3) FIRM INTO LLP

LLP IN TO COMPANY

WHAT ARE THE INSTANCES THAT REQUIRES THE CONVERSION OF LLP INTO COMPANY:

1) When LLP wants to raise more fund

2) When LLP expands the business

3) Tax benefit

PROCEDURE:

Approval of name

Name Approval has to be obtained from the ROC (Registrar of Companies) by submitting an application in e-format. The name once accepted by the authority will be valid for 60 days.

Securing DSC and DIN

Director Identification Number (DIN) for all the future directors of the company must be obtained. For obtaining the DIN, an application form must be filed on MCA portal.

Filing form no. URC – 1

After getting the approval of name from Registrar of Companies, the applicant must prepare & file the form No URC-1 in addition to the following documents.

  1. List of the members with various details viz. names, address, shares held by them appropriately, etc.
  2. List of the first directors of the private company with various details viz. names, address, the DIN, passport number with an expiry date, etc.
  3. An affidavit from every person proposed as first directors, that he is not banned to be a director under section-164 and all the necessary documents filed with the registrar for the registration of firm must contain information which is complete and correct & true to be best of his belief and knowledge.
  4. A list including the names & addresses of partners of LLP and a copy of LLP agreement & certificate of registration duly verified by two designated partners of LLP must be enclosed.
  5. A statement indicating the following specifications

a) the nominal share capital of firm & the number of shares into which it is separated

b) the number of shares taken & the amount paid for every share

c) the name of the firm, with the addition of word Limited or private limited is required.

  1. A written consent or No objection certificate from all creditors.
  2. Copy of newspaper advertisement, statement of accounts of the company which must not be 6 days preceding the date of the application and it must be duly certified by the auditor.

Memorandum of Association & Articles of Association

  1. Memorandum of Association (MOA) & Articles of Association (AOA) is to be formulated and then filed with ROC after getting the name approval and sanction of form no. URC-1 – from the registrar.
  2. The conversion process provides certain tax benefits, however for availing the same several additional requirements needs to be met, for instance, maintaining the same shareholding by the partners as was in the previous LLP when the conversion takes place, for five years from conversion the former partners of such LLP who are now shareholders in the newly formed company cannot in total have shareholding less than 50 percent.

ANOTHER WAY OF CONVERSION:

There is another option available for the LLP which is to establish a separate private limited company and after that get the whole business transferred to the private company with the help of a written agreement, in such case the restrictions mentioned above such as need for minimum 7 partners, newspaper publication, etc. are not needed to be met. However, in this situation, there is a levy of capital gain tax. Moreover, stamp duty implication is also applicable to such transfer.

COMPANY INTO LLP

WHAT ARE THE INSTANCES THAT REQUIRES THE CONVERSION OF COMPANY INTO LLP:

1) COMPLIANCES BURDEN

2) WHEN COMPANY WANTS TO LIMIT ITS BUSINESS

3) ASSETS OF COMPANY CAN EASILY BE TRANSFER

4) NO STAMP DUTY PAYMENT ON TRANSFER OF ASSETS

5) WHEN COMPANY WANTS TO INCREASE THE NUMBER OF MEMBERS AS A PARTNERS.

PROCEDURE:

  1. Convene a Board Meeting to pass resolution for conversion of Company into LLP.
  2. Reserve the name using RUN-LLP as available mca.gov.in (not mandatory as the same can be reserved along with application to incorporate LLP as well)
  3. File form for incorporation of Limited Liability Partnership (FiLLiP).

Attachments:

    1. Registered office documents (for eg.: utility bill, NOC and proof of ownership)

      1. Identity proofs and residence proofs of partners and designated partners.
      2. Consent to act as designated partner as per the format provided in Rule 7 and Rule 10(8) in LLP Rules, 2009.
      3. Subscriber Sheet
      4. Details of Companies/LLPs in which the partners/designated partners are Directors/Partners or Designated Partners.
  2. File Form-18.

Attachments:

Statement of consent of shareholders

Statement of Assets and Liabilities of the company duly certified as true and correct by the auditor

List of all the secured creditors along with their consent

Approval from any other body/ authority.

Copy of acknowledgement of latest income tax return.

  1. File Form 14 within fifteen days of approval of Form 18. As per Third Schedule of the Limited Liability Act, 2008, an application (physically) has to be filed with Registrar of Companies informing about such conversion within 15 days of such conversion. However, as per the help kit of the eForm 18, the eForm-14 is not required to be filed after filing eForm 18. Upon approval of eFORM-18 itself, the status of the company will be changed to ‘Converted to LLP’. Therefore, this appears to be contradictory.
  2. File Form 3 within thirty days of incorporation of LLP attaching the LLP agreement mentioning therein the terms and conditions of Limited Liability Partnership among the partners

REGULAR PARTNERSHIP FIRM INTO LLP

POSSIBLE REASONS TO CONVERT FIRM INTO LLP:

1) LLP is a separate legal entity and can hold assets in its name.

2) The existence of LLP is not affected by change in the Partners of LLP.

2) TO LIMIT THE LIABILITY OF PARTNERS

3) TO INCREASE THE IMAGE OF FIRM BECAUSE NO ONE CAN USE THE NAME BY WHICH LLP IS REGISTERED.

4) TO RAISE MORE FUNDS

5) TO MAKE BUSINESS MORE TRANSPERANT THUS INCRAESE THE CREDIBILITY.

PROCEDURE:

Requirement of DIN or DPIN: Partners registered in a partnership firm does not generally have DIN (Director Identification Number). DIN is a unique number issued by the Central Goverment. This number is issued to a person only once and can be used by the person through out this life without any compliance.

Name Approval: After the DIN availability process is over, person can apply for the Name reservation of the proposed LLP through Ministry of Corporate Affairs. The Reservation of the name of the LLP must be obtained before filing the forms for conversion of the Partnership Firm into LLP. As when we will file Form-17 (for conversion) SRN will be required of the Name Reservation (RUN) of LLP.

Filling of Form-Fillip: Form for Incorporation of Limited Liability Partnership. If the partners does not have DIN we can apply for application of DIN (Maximum 2) in the Form- Fillip.

Documents and information required for Form- Fillip:

i) Name of Proposed LLP

ii) DSC of Designated Partners

ii) Capital of Proposed LLP and Contribution of Proposed Partners

iv) Phone No. and E-Mail Id of Proposed Partners

v) Voter Id Card/Driving Licence/Passport of Proposed Partners

vi) Latest Utility Bill (Not Older Than 2 Months)(for Registered Office)

Registered Office Proof (Index-2/ Allotment Letter/ Possession Letter/ Sale Deed/ Rent Agreement)

viii) PAN of all Designated Partners/ partners

ix) Bank Statement of Designated Partners/ partners

Attachments for Form Fillip:

Subscriber Sheet Including Consent.

Proof of Address of Registered Office of the LLP which includes NOC of the Owner.

Proposed Main Object.

Details of LLP or Company if the proposed Designated Partner /Partner is Director or Partner of any other Company or LLP respectively.

Filling of Form-3: Information with regard to limited liability partnership agreement and changes, if any, made therein.

Attachments

LLP Agreement.

Filling of Form-17: Application and a Statement of the Conversion of Partnership Firm into LLP (Limited Liability Partnership) i.e., Form 17. This form includes a Declaration by a Partner of the Partnership Firm. And shall be Digitally Signed by a Partner and Certified by a Company secretary in whole time practice/Chartered accountant in whole time practice/ Cost accountant in whole time practice

Attachments in Form-17:

Statement of consent of partners of the firm.

Statement of Assets and Liabilities of the firm duly certified as true and correct by the Chartered Accountant in practice.

Copy of acknowledgement of latest income tax return.

List of all the secured creditors along with their consent to the conversion

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FAQS

YES, We can convert LLP into company.

1) Non-applicability of MAT. 2) Profits can be distributed without any cost of Distribution Distribution Tax (DDT). 3) Audit not mandatory.

1) All the assets and liabilities of the Company become the assets and liabilities of the LLP; 2) all the shareholders of the Company become partners of the LLP and that the capital proportion and profit sharing ratio are in the same proportion as that of the shareholding in the Company; 3) the shareholders does not receive any benefit, directly or indirectly in the LLP, except by way of capital contribution and profit sharing ratio. 4) the aggregate of the profit sharing ratio of the shareholders of the Company in the LLP shall not be less than fifty per cent, at any time during the period of five years from the date of conversion (i.e. you can add new partners to the LLP but the aggregate of profit sharing ratio of previous partners shall not fall below 50%) 5) the total sales, gross receipts and turnover in any of the three preceding year from the date of the conversion does not exceed Rs. 60 Lacks; 6) no amount, is paid either directly or indirectly, from the accumulated profits to any of the partners for a period of three years from the date of conversion; 7) the total value of assets as appearing in the books of account of the Company in any of the previous three years does not exceed Rs. 5 crores.

YES, DPIN is mandatory for every designated partner for appointment in an LLP.

The actual cost of the block of assets in the case of the LLP shall be the written down value of the block of assets as in the case of the said company on the date of conversion of the company into the LLP.

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