Company Registration

Conversion of Company into LLP

When a private Limited Company is not in compliance of Law and its requirements and planning to continue its business in less cost and compliances, The Company may Convert itself into LLP (Limited Liability Partnership).

This Article Contains the various important points related to Conversion of private company into llp

Conditions For Conversion Of Company Into Llp

  • Every member of the company must agree with the decision of conversion.
  • Not just the members, all the creditors of the company must also agree with the conversion.
  • At least one balance sheet and annual return should have been filed by the Company after its incorporation.
  • No open (unsatisfied) charges should be pending against the Company.
  • The Shareholders of the Company will only become partners of the LLP and no one else.
  • No eForms should be pending for payment or processing or approval in respect of the Company
  • Under Companies Act, no prosecution should have been initiated procedure to be followed
  • There is no security interest in its assets subsisting or in force at the time of application.
  • The company should be having share capital.
  • The company should not be a ‘Section 25 company’/ ’Section 8 Companyunder Companies Act, 2013.

Reasons For Conversion Of Company Into Llp

  • Less compliance costs
  • Audit required only if the turnover and contribution exceed Rs. 40 lakes and Rs. 25 lakes respectively.
  • The maximum limit of shareholders is not limited in an LLP. The LLP can have any desired number of shareholders. However, the maximum number of shareholders is fixed in a private company.
  • The partners will divide the income among themselves without attracting any additional tax, i.e. Tax on payment of dividends.
  • In the case of LLP, a number of strict rules banning the Company from taking loans from individuals or giving loans to the respective Director are not in effect.
  • In the case of LLP, there are no restrictions on related party transactions.
  • Management of funds depends entirely on the members’ wish.
  • The Finance Bill 2010 stated that the capital gain tax will not be levied on conversion to an LLP if certain conditions are adhered to.

Benefit of Conversion of Company into LLP

The following are some of the implication on the conversion of a company into an LLP:

  • The private company shall be considered to have been dissolved.
  • The name of the private limited company shall be deleted from the registry of the Registrar of Companies.
  • All property, assets, interests, rights, privileges, liabilities and responsibilities of a private limited company shall be transferred to the LLP upon conversion.
  • The transfer has no effect on current liabilities, obligations, agreements, contracts or continued employment.
  • Permits or licenses given to the Private Limited Company under any written legislation and which are valid before the conversion date will not be automatically transferred to the Limited Liability Partnership. The terms of the license would be the deciding factor here. Thus, in most situations, the promoters will have to obtain fresh GST registration or FSSAI registration.

Procedure For Conversion Of Company Into Llp

 Step 1: Check Eligibility Criteria for Conversion Of Company Into Llp.

Step 2: Convene a Board Meeting to pass resolution for Conversion Of Company Into Llp  and to approve any director to Apply for Name of LLP.

Step 3: The company will have to apply for reservation of name of LLP and get the name approval certificate from ROC.

Step 4: File e-Form-2 Incorporation Documents with ROC along with the following documents.

  • A copy of Board Resolution of the company which is becoming designated partner through a nominee.
  • mandatory to attach a proof of the registered office.
  • Subscriber sheet in the prescribed format.

Step 5: File Form-18 for the conversion of a company into an LLP. But it needs to be filed with Form 2 for incorporation itself with the following attachments:

  • Copy of acknowledgment of latest income tax return (Mandatory)
  • List of all the secured creditors along with their consent (Mandatory if where there are secured creditors of the company and consent of all the secured creditors for conversion of company into limited liability partnership has been obtained)
  • Approval from any other body/ authority (Mandatory if applicable approvals from the concerned body/ authority or authorities is required and have been obtained)
  • Statement of Assets and Liabilities of the company duly certified as true and correct by the auditor (Mandatory, the statement should contain the latest place as on date of application for conversion)
  • Statement of shareholders of the Company (Mandatory to be attached)

Step 6: After complying to all the formalities by the company and approved by the Ministry, ROC to issues a COI as to the conversion of LLP.

Step 7: Drafting an LLP Agreement

Following the incorporation, the designated partners must now draw up an LLP agreement, which must contain the following information:

  • LLP’s Name
  • Name of all Partners and Designated Partners
  • Rules of governance
  • Proposed Business
  • Rights and Duties of Partners
  • Form of contribution
  • Profit-Sharing ratio

 Step 8: Filing of LLP Agreement in form 3 within 30 days from the date of conversion of the company into an LLP allongwith Properly executed LLP Agreement.

 Step 9: File Form 14 within fifteen days of approval of Form 18. To personally inform the registrar about the conversion, form 14 must be filled within 15 days after receiving the COI. However it is not mandatory as Upon approval of eFORM-18 itself, the status of the company will be changed to ‘Converted to LLP’.

DISCLAIMER: The entire contents have been developed on the basis of relevant information and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors expressly disclaim all or any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document. Reader should seek appropriate counsel for their own situation. I shall not be held liable for any of the consequences directly or indirectly.

Any other suggestions /opinions are welcomed.

Regards

Author: CS Megha Sharan (Company Secretary in Practice)

Contact No 9650082009

Email: ezzusindia@gmail.com

Ezzus India Team

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