CONVERSION

 

1. Conversion from Partnership Firm to Limited Liability Partnership (LLP)

The conversion from traditional partnership to limited liability partnership is on the rise in recent years. The reason behind this change is that LLP offers more flexibility and limited liability of partners. Since LLPs are hybrid form of both Partnership firm and Private limited company so it offers advantages of both forms.

Advantages of LLP

  • Limited Liability to the extent of their capital contribution.
  • There is no limit on number of partners (Unlimited Partner).
  • More Flexibility.
  • Perpetual succession.

Condition for Conversion (Partnership to LLP)

  • The partnership firm to be converted must be registered under the Partnership Act, 1932.
  • All the partners’ consent must be obtained.
  • The conversion of a partnership firm to LLP shall be done as per Section 55 of the Limited Liability Partnership Act 2008 read with Schedule II of the Act.
  • All the partners of the firm shall be the partners of the LLP, which means there shall be no new partners or the existing partners cannot cease to be partners while making the application.
  • It is mandatory for all Partners to hold a valid Digital Signature Certificate (DSC) and at least two partners who are willing to be designated partners must have a DPIN before making such an application.
  • Director Identification Number (DIN)/Designated Partner Identification Number (DPIN) must be obtained for all Designated Partners.
  • The LLP must have the same partners as that of the partnership firm. Any partner that wishes to be removed from the LLP may be removed after the conversion is complete.

Procedure-

  • Apply for Name approval of LLP.
  • Obtain Digital Signature Certificate (DSC) for designated partners.
  • Filing of LLP FORM 17 

The following attachments are to be provided in FORM 17-

  1. Statement of Consent of Partners of the firm.
  2. Statement of assets and liabilities of the firm certified by a Chartered Accountant in practice.
  3. Copy of the latest Income Tax Return acknowledgement.
  4. List of all the secured creditors along with their consent.
  • Filing of LLP Incorporation Form-FiLLiP

The application form has to be filed with:

  1. Details of the RUN – LLP which will be auto-filed.
  2. Registered office address and email id of the LLP.
  3. Office of the Registrar.
  4. Nature of business activities.
  5. Details of the partners, designated partners, their DINs, DPINs and PANs.
  6. Amount of contribution by the partners in the LLP.

  • Attachments to be provided are:

  1. Proof of address of the registered office of the LLP.
  2. Subscriber’s consent.
  3. NOC from the property’s owner and copy of utility bills (not more than 2 months old).
  4. Approval of any regulatory authority, where necessary.
  5. Details of any LLP/Company where a designated partner is also a director/partner.
  6. Proof of identity and address of the applicants.
  7. Where the name of the LLP is identical to any existing Company/LLP, a copy of the Board Resolution or Consent of the existing LLP serving as a No Objection Certificate.

The Certificate of Registration of the LLP shall be granted by the Registrar on approval of the application.

LLP Agreement- The LLP Agreement has to be submitted in Form LLP – 3 within 30 days of incorporation of the LLP.

Finally you have to intimate the conversion of partnership firm into LLP to the Registrar of Firms in FORM-14.

2. Conversion from Limited Liability Partnership (LLP) to Private Limited Company.

There are businesses in India who begin their journey as a Limited Liability Partnership (LLP), but now are keen on converting into a private limited company for more growth and prosperity in business. Provision mentioned in the Section 366 of the Companies Act, 2013 and Company (Authorised to Register) Rules, 2014, says that an LLP can be converted into a Private limited Company.

Corporatization has become the need of the current market situation. We live in a world where the ulterior goal of every market is to drift towards one global market removing the barriers between the countries. There are many start-ups and entrepreneurs who are eager to step into corporatization.

However, there are various requirements which need to be satisfied for converting an LLP into a Private Limited Company, for instance, an LLP must have at least 7 partners, approval from all the partners is required, advertisement in newspaper is to be done in a local and a national newspaper, a No Objection Certificate (NOC) is required from the ROC where such LLP is registered and then all the incorporation process has to be undertaken.

LLP is majorly suitable for small businesses that have annual sales turnover of fewer than Rs 40 lakhs and a capital contribution of fewer than Rs 25 lakhs. LLPs that satisfy these conditions do not have to go through the audit every year, on the other hand, it is necessary for a private limited company to conduct an audit of its financial statement each year. Though, in case, LLP has an annual turnover of Rs 40 lakhs or a capital contribution of more than 25 lakhs, the need for compliance become almost similar for both the private limited company and LLP, forcing the owners of LLP to convert into a Private Limited Company.

Benefits of Conversion of LLP into Private Limited Company

  • Preservation Of Brand Value

    Conversion of LLP into Private Limited Company facilitates business entities to continue the brand name without making any further efforts on brand advertisements.

  • Carry Forward Of Unabsorbed Losses And Depreciation

    After the conversion, no expenditure will be incurred on bookkeeping, as the losses and depreciation incurred in LLP will be carried forward on the conversion of entity

  • Employee Stock Ownership Plan To Employees

    Conversion of LLP to Private Company facilitates Companies to offer stock ownership and ESOP plans. Such plans help companies to attract efficient employees, as it offers incentive plans for them to work in the company.

  • Easy Fund Raising

    If the company registration process is strict, it helps the company structure to be more credible among others. This leads to easy fundraising from external sources.

  • Separate Legal Existence

    Conversion of company facilitates the separate ownership and management to pay attention to their potential work. The Shareholders assign responsibility to run and operate the company without losing control in form of voting.

  • Limited Liability Of Owners

    Conversion prohibits the liability of the owners only to the capital subscribed and unpaid by them.

Reasons for Private Limited Company Registration

  • LLP does not entertain the concept of shareholders. All the owners in a LLP are considered as Partners in the LLP and are considered as unsuitable for investors such as Venture Capitalists and Private Equity investors who are reluctant to indulge in the management of the LLP. Private Company is the best choice for investors. If the business is growing then the owners must convert it into a private limited company.
  • FDI is becoming popular in Indian market. A private limited company does not require any approval from the government authorities for FDI while government approval is much needed for FDI in LLP.

Procedure of conversion from LLP to Private Limited Company

  • Apply for Approval of Name of proposed company.
  • Obtain DSC and DIN.
  • File E Form URC-1 along with-
  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
    • the nominal share capital of firm & the number of shares into which it is separated
    • the number of shares taken & the amount paid for every share
    • the name of the firm, with the addition of word Limited or private limited is required.
  6. A written consent or No objection certificate from all creditors.
  7. 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.
  • Draft Memorandum of Association (MoA) & Articles of Association (AoA) of proposed company and then filed with RoC after getting the name approval and sanction of form no. URC-1 – from the registrar. 

 

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.

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