Conversion of Private Company into LLP

Advantages

The number of shareholders of a private company is limited to 50, while the number of partners in a LLP can be unlimited.

Unlike private limited companies (shareholders limited to 50), an LLP can have unlimited number of partners.

Tax benefit is the main advantage of changing a private company into a LLP; the Income Tax Act of 1961 provides for payment of minimum alternate tax or MAT and dividend distribution tax or DDT for private companies that LLP's are exempted for. Also LLP's are exempted from paying stamp duty and capital gain tax on transfer of movable and immovable properties.

The liabilities and assets both movable and immovable properties are automatically passed on to the LLP.

The name and legal entity of a partnership changes into a LLP, but the brand value, good will and legal recognition of the firm continues.

A LLP requires minimum compliance related to maintenance of statutory records and is a very cost effective model as compared to private companies.

The LLP carries forward the losses and unabsorbed depreciation, losses are deemed to be the losses of the previous year before the conversion. These losses are carried forward for a further 8 years by the LLP successor company.

Key requirements for conversion to LLP

The shareholders and members of a private company automatically become the LLP partners in the same proportion as projected by the private company's records. Allotment of shares is the consideration received by the partners.

Filing of income tax and annual returns should be up-to-date with the Registrar Of Companies.

The consent of all the unsecured creditors is mandatory for the proposed conversion.

There should be a minimum of 2 designated partners, with at least 1 being a resident of India. The designated partner and partner could be the same person.

In case a corporate body is a partner, it has to nominate a nominee that is a natural person.

It is necessary for each partner to make some contribution; the concept of share capital does not exist.

All partners require a DPIN or Designated Partner Identification Number.

All designated partners require a Digital Signature Certificate or DSC.

Steps to convert private limited company into a LLP

The first step is the application for the Designated Partner Identification Number or DPIN; it is necessary to get an approved DPIN for the incorporation of the company. Applying and getting a provisional DPIN first would involve certification and attestation of the personal details of the director. These documents have to be submitted later to the MCA cell for approval. It could take about 5 working days.

The next step is the application for name availability that could take 3 days and involves filing of Form 1. On conversion of a partnership firm the mere addition of the word LLP to the existing name is permissible.

The next step that takes 2 days would involve taking steps for the incorporation of the LLP. It involves drafting the LLP agreement and getting it vetoed by the promoters before sending it for printing. It also involves filing Form 17 with statement of partners, statement of partners and the assets and liabilities of the company that is certified by a chartered accountant. It should also contain a list of creditors with their consent for conversion and approval of any other body or authority.

It also consists of the processing of e-forms and other documents like the LLP agreement duly stamped, proof of address of the registered company, Form2, Form 3, Form 4, Form 9 and the subscription sheet duly signed by the promoters. This process should take 2 working days.

The final step involves filing all the documents with the Registrar Of Companies, follow up with him/her and making changes in the LLP agreement as suggested, It is also important to upload e-forms online, pay the registration fees and get the Certificate of Incorporation.

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