Limited Liability Partnership (LLP) is an internationally recognized unique and standard business structure. In India, this business structure is governed by the Limited Liability Partnership Act, 2008, which was notified on 31 March 2009. This business form seeks to incorporate, in one single business structure, the operational flexibility of a partnership with the benefits of limited liability and separate legal identity like that of a company. This structure is gaining popularity very rapidly since its inception for SMEs, professional service companies and any small business that seeks to reduce its tax and compliance liabilities. Thus, it is important for every entrepreneur to know that conversion of company into LLP is possible and vice versa and the procedure for such conversion. Here let us explore how a Private Limited Company could be converted into an LLP.
According to the Third Schedule of the Companies Act 1956, “convert” in relation to the conversion of company into LLP, means a transfer of the property, assets, interests, rights, privileges, liabilities, obligations and the undertaking of the Pvt. Company to the LLP in accordance with the Schedule.
Important Things About Conversion Of Company Into LLP
- All the shareholders of the Private Limited Company become the partners in the LLP in the same proportion. There can be no other partner. One or more shareholders may opt-out from being a partner but it has to be kept in mind that there are at least 2 designated partners as a minimum requirement for an LLP. New partners can be admitted only after incorporation of LLP.
- All the designated partners must obtain a DIN from the Central Government if they don’t already have their DIN. Since all applications are to be submitted electronically, for the purpose of signing the forms, all designated partners should obtain Digital Signature Certificates (DSC) from Government recognized DSAs.
- There should be no-show cause or prosecution initiated against such company for any allegations of committing offences under the Companies Act, 1956 (now also the Act of 2013). No proceeding should be pending before any Court or Tribunal. If such circumstances are present they should be attached with the application form.
- Whether any conviction, ruling, order, judgement of any Court, Tribunal or any other authority in favour or against the Company is subsisting; whether any clearance, approval or permission for the conversion is required from any authority (IRDA, SEBI, RBI, ICSI, ICAI, ICWAI, BAR COUNCIL, etc); and whether the company has creditors, then NOC from Unsecured Creditors – all of which should be attached with the application form.
- At the time of application for conversion of company into LLP, there should be no security interest subsisting or in force on the assets of such Company on the MCA website or otherwise.
- One financial year must be over for the Company and there must be no pending E-forms filed by the Company. All filing of all form and returns and income tax filings should be updated before application of such conversion.
- Conversion of company into LLP can be done only by complying with the provisions of the Third Schedule of the Companies Act, 1956 and all the partners of the newly incorporated LLP will be bound by these provisions.
Procedure To Convert Private Company Into LLP
The procedure to convert a private company into a Limited Liability Partnership can be summarised systematically as under:
The LLP Agreement must consist of the following Clauses –
- Name, Object and Registered Office of LLP
- The initial contribution of LLP by partners
- The methodology of valuation of a non-monetary contribution
- The net profit or loss sharing ratios
- Details of Designated Partners
- Interest Payable on capital loan prescribed u/s 40 (b) of the Income Tax Act 1961
- Mode of operation of Bank Accounts
- Maintenance of Book of Accounts
- Appointment of Arbitrator
- Rights and duties of partners
- Rights and duties of designated partners
- Indemnity clause
- Goodwill clause
- Procedure for change in name
- Procedure to appoint an auditor
- Admission of a new partner
- Cessation of existing partners
- Winding up of LLP
- Amendment of agreement of LLP
- The extent of Liability of LLP and its partners and designated partners
- Ancillary or other business carried on by LLP
Attachments of E-Form 2
- Proof of address of Registered office of LLP
- Subscription sheet signed by promoters
- Notice of Consent & appointment of designated partners with their personal details
- Details of LLP(s) and / company(s) in which partner / designated partner is a director / partner
Attachments of E-Form 18
- Statement of shareholders
- Incorporation documents & subscribers statements in Form 2 filed electronically
- Statement of assets and liabilities of the company duly certified as true and correct by the auditor
- List of all the secured creditors along with their consent to the conversion
- Approval of all the governing council
- NOC from income tax authorities and copy of the acknowledgement of latest Income Tax Return
- Approval of any other body or authority as required
- Particulars of pending proceedings from any Court / Tribunal etc.
Note – After all formalities and filings have been complied with by the applicants and approved by the Ministry, REGISTRAR OF LLP SHALL ISSUE A CERTIFICATE OF REGISTRATION in Form 19 as to the conversion of company into LLP, the Certificate Of Registration shall become conclusive evidence of conversion to LLP.
Attachments of E-Form 14
- Copy of Certificate of Incorporation of LLP
- Copy of incorporation documents submitted in Form 2
Government Fees Payable
- Obtaining DIN – Rs 100 per designated partner (payable with Form & DIN-1)
- Reservation of name – Rs. 200 (payable with Form 1)
- Registration of LLP (payable with Form 2)
- Submitting Details of Appointment of Designated Partners – Rs. 50 (payable with Form 4)
- Details of LLP Agreement (payable with Form 3)
In addition to these above Fees, Stamp Duty must be paid on the LLP Agreement. The MCA has clarified that if a State has no specific entry for stamp duty payable on LLPs, the rate of stamp duty on LLPs in that particular state will be same as that which is applicable to partnerships.
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