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Conversion of Private Limited Company into LLP

CONVERSION OF PRIVATE LIMITED COMPANY INTO LLP

LLP structure offers the benefits of both of partnership and a company. By converting the company to LLP, the business gains more operational flexibility. The characteristics of being a separate legal entity and limited liability remain the same. Further, the operations and management come directly in hands of the LLP partners unlike in Private Company where it is with the directors. many benefits conversion of private limited company into llp.

Procedure for Conversion of Private Limited Company into LLP:

  1. Obtain Director Identification Number

  2. Obtain DIN for those designated partners who don’t possess DIN already. 

  1. Board Meeting

The board meeting will be required to be held to consider the proposal of conversion. The board resolution is to be passed for Conversion of Company into LLP and to approve any director to Apply for Name of LLP.

  1. Application for Name Availability

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

  1. Attach Documents

File e-Form and then fill it with ROC along with the documents.

  1. Filing of Application for Conversion into LLP

Form 18 is the form for the conversion of a company into an LLP. But it needs to be filed with Form for incorporation itself.

  1. Certificate of Incorporation as LLP from ROC

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

  1. Filing of E-Form-3

e-Form-3 provide details about the LLP Agreement entered into between the partners. This form is to be filed in 30 days from the date of conversion of the company into an LLP.

 

  1. After receiving the incorporation certificate of LLP it has to be filed within 15 days of the date of conversion.

Benefits of Conversion of Private Limited Company into LLP

01
Rewards and returns to partners

The partners of the LLP receives multiple returns, such as remuneration, the share of profit and also the interest on capital. The remuneration is paid for active participation by partners, whereas the share of profit is part of profit generated from business activities.

02
Independent liability

No partner is liable on account of the unauthorized actions of other partners. Thus, individual partners are shielded from the burden of joint liability created by another partner’s wrongful business decisions or misconduct.

03
No Capital Gains Tax

No capital gains tax shall be charged on transfer of property from the firm to the LLP.

04
Operational Flexibility

The partners are directly associated with the day-to-day operations and management of LLP. Unlike a company, LLP is governed through the LLP Agreement which is executed mutually by the partners.

How to Conversion of Partnership Firm Into Limited Liability Partnership

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Documents Required For Conversion of Private Limited Company into LLP

  • Consent of each of the shareholder of the company for conversion of the firm into LLP in the given format.
  • Incorporation document in Form 2.
  • Form 3- Form of application and declaration of incorporation of an LLP.
  • No-objection certificate from tax authorities.
  • Financial Statement of assets and liabilities from the company.
  • List of all the creditors along with their consent.
  • Authorization to make a declaration.
  • Pvt.Ltd. company documents: PAN card, certificate of incorporation, GST registration or any other applicable documents/registrations.
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Frequently asked questions on Conversion of Partnership Firm into Limited Liability Partnership

1. Can Pvt Ltd company be converted into LLP ?

Ans.  A private limited company can be converted into an LLP under the following circumstances:
  • The company has no security interest in its assets at the time of application.
  • The partners of the LLP will be no one but the shareholders of the company.

2. How do I change my company to LLP ?

Ans.  Requirements for conversion of company into LLP
  • Obtain DPIN (Form DIR-3) …
  • Meeting of board of directors of the Company. …
  • File Form 1. …
  • Draft the LLP agreement. …
  • File Incorporation Documents in Form-2. …
  • File Form-18 for Application for Conversion. …
  • File Form-3. …
  • Obtain certificate of incorporation.

 

3. How do you calculate capital gains on a company to LLP ?

Ans.  Computation of ‘capital gains’ :
The conversion of the assets and liabilities of the erstwhile company to the LLP took place at the ‘book value’ itself and therefore, no separate cost other than the ‘book value’ was attributable to the individual assets and liabilities.

4. Is Schedule III applicable to LLP ?

Ans. Yes, any existing private company or existing unlisted public company can be converted into LLP by complying with the Provisions of clause 58 and Schedule III and IV of the LLP Act.

5. Is audit compulsory for LLP ?

Ans. LLP Audit Requirement
LLPs are required to have its accounts audited by a practicing Chartered Accountant if its annual turnover, in any financial year exceeds Rs. 40 lakhs or its contribution exceeds Rs. 25 lakhs.

6. Is there any turnover limit for LLP?

Ans. Every LLP whose turnover exceeds INR 1 Cr. in case of a business or INR 50 Lakh in case of a profession, is required to get its books of accounts tax audited under section 44AB of the Income-tax Act. Such audit will have to be completed and filed by 30th September.

7. What are the limitations of LLP ?

Ans. Disadvantages of an LLP
  • Public disclosure is the main disadvantage of an LLP. …
  • Income is personal income and is taxed accordingly. …
  • Profit can not be retained in the same way as a company limited by shares. …
  • An LLP must have at least two members. …
  • Residential addresses were historically recorded at Companies House.

8. Is LLP better than Pvt Ltd ?

Ans.  LLPs combine the operational advantages of a Company as well as the flexibility of Partnership Firms. The fee for incorporation of an LLP firm is very nominal as compared to that for Private Limited Company. The compliance requirements for an LLP are significantly lower than those for a private limited company.

9. What are the benefits of LLP ?

Ans. Disadvantages of an LLP
  • The advantages of LLP (Limited Liability Partnership) are:
    • No minimum capital requirement.
    • No limit on owners of business.
    • Lower Registration Cost.
    • No requirement of compulsory Audit.
    • Savings from lower compliance burden.
    • Taxation Aspect on LLP.
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