A Guide for Conversion of LLP Into Company

Published On: Mar 26, 2020Last Updated: Jul 23, 20225.5 min read

Most of the people opting for LLP registration are small businesses that do not foresee any requirement for raising equity funds. However, some of these small businesses may at some point have a requirement to convert to a private limited company. Therefore, in this article, we look at the process for the conversion of an LLP into a private limited company.

Conversion of LLP into Private Limited Company

Operating a Limited Liability Partnership comes with limitations and challenges. If you are planning to scale your business and need funding, a Pvt Ltd company is the structure you want to go for. A Pvt Ltd company offers better opportunities for the growth & expansion of your business. Venture capitalists and even banks prefer PVT ltd structure over the other forms when it comes to fundraising, investing or loans. Earlier it was not possible to convert an LLP into a private limited company. However, as per section 366 of the Companies Act, 2013, any partnership firm or LLP, cooperative society, or any other business entity with two or more members can get themselves registered as a limited or unlimited company.

If you want to convert your LLP into a Pvt Ltd company, we have got you covered. Keep on reading as we discuss the conversion of LLP into private limited company.

Process for conversion of Limited Liability Partnership into a private limited company:-

1. Approval of Name

To get the name approved from the MCA, one needs to submit the RUN (Reserve Unique Name) form which is in a prescribed e-format. Multiple names are to be filled in while submitting the RUN form. Also, the name which is approved by the ROC is available for use only for twenty days in case of a new company and sixty days in case of a change of name of an existing company.

2. Securing DSC and DIN

Apply for the Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all the members of the LLP who after the conversion will be the directors of the Private Limited Company.

In case they don’t have it, a self-attested address proof, identity proof and one recent passport size colour photo of the applicant have to be provided along with the application. DIN can be obtained directly by filing an incorporation form on the MCA portal.

Also Read: Difference between Private Limited Company and LLP

3. Filing of Form URC – 1

Once the MCA approves the name, form URC-1 has to be filed by the applicant. The following is the list of documents which are to be submitted along with the form URC-1:

·       Required details like name, address, and shares held by the shareholders are to be provided along with the list of members.

·       Names, address, the DIN, and passport number with an expiry date of all the respective directors of the Private Limited Company has to be provided.

·       As per section 164 of the Companies Act, 2013, an affidavit has to be provided by all the proposed first directors of the Private Limited Company stating that they are not disqualified from being a director in a company.

·       A copy of the LLP agreement along with a list consisting of the names and addresses of partners of LLP and a certificate of registration which is duly verified by 2 designated partners of LLP has to be provided.

·       A statement has to be provided by the company with the details of the nominal share capital of the firm and the number of shares into which it is separated, the number of shares taken, the amount paid for every share, and the name of the firm with the addition of word “private limited”.

·       A no-objection certificate from all the creditors is to be provided.

·       A duly certified statement of accounts of the company by the auditor which must not be of 6 days preceding the date of application and copy of the newspaper advertisement is to be provided by the company.

Pros of Private Limited Company over LLP

  1. `LLPs do not have the concept of members. Hence, all the owners of an LLP would be designated Partners in the LLP. This structure is not appropriate for Venture Capitalists and Private Equity Investors – who do not wish to actively participate in the management of the Company. Hence, equity holders will only invest in a Private Limited Company. Therefore, if the owners have plans for expanding the business by raising equity capital, then the entity must be registered as a private limited company.
  2. Foreign Direct Investment (FDI) in a private limited company is under the automatic route whereas FDI in a Limited Liability Partnership is under the approval route. Therefore, businesses that have foreign or NRI promoters opt for the incorporation of a private limited company.
  3. Tax credit in respect of tax paid on deemed income relating to certain companies (i.e. MAT credit U/S 115 AA).
  4. The penalty for non-compliance or late filing of documents with the Ministry of Corporate Affairs is most of the time higher for an LLP as a flat fee of Rs.100 per day is charged when the non-compliance continues with no cap on the liability. Therefore, LLPs could incur a huge penalty or fines from MCA due to non-compliance.

Cons of Private Limited Company

  1. Private limited companies have a limit on the Number of shareholders whereas in an LLP there is no such restriction.
  2. The audit is not required for a Limited Liability Partnership whose annual sales turnover is less than Rs.40 lakhs and the LLP has a capital contribution of fewer than Rs.25 lakhs. Whereas for a Private Limited Company, an audit is mandatory irrespective of sales turnover or capital of the company.
  3. In LLP, there is no concept of Board Meetings or Annual General Meetings. So annual compliance is comparatively lesser.
  4. Minimum Alternate Tax U/S 115 JB of Income Tax Act, 1961 is not applicable.
  5. There is no need for compliances related to meetings and maintenance of huge statutory records in an LLP.

Conclusion

Conversion of llp into company entails a lot of advantages for you business including capital gain. Private Limited company is also the structure you will need to raise capital for the expansion of your business. Our experts at LegalWiz.in have helped thousands of businesses achieve their goals and you can be next! Give us a call now to convert your LLP in to a Pvt Ltd Company.

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CS Shubham Katyal
About the Author

CS Shubham Katyal

CS Shubham Katyal is an Associate Member of The Institute of Companies Secretaries of India and a commerce graduate having good experience in secretarial and legal matters. He is a Speaker and Visiting Faculty Member at The Institute of Companies Secretaries of India and Former Committee member of Young Member Empowerment & Placement Committee NIRC-ICSI(2019-20). He has authored several articles on complex subjects which featured on various professional forums.