+91 7305 345 345Conversion of LLP to Pvt Ltd
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provisions mentioned in Section 366 of the Companies Act, 2013 and Company (Authorised to Register) Rules, 2014. Running an LLP type of business entity can be hard compared to other form businesses as they offer better opportunities for the growth & development of the business activities. Therefore, we convert the LLP into a Private Limited Company to enjoy the remarkable benefits and to attract shareholders with help of the expert team from Kanakkupillai.
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Overview of Conversion of LLP to Private Limited Company
Converting an LLP to a Private Limited Company is an important decision under the Companies Act, 2013 and the Limited Liability Partnership Act, 2008. This process allows an LLP to transition into a Private Limited Company, which provides a formal company structure and the credibility associated with it while still offering the limited liability and flexibility of an LLP. This change is particularly beneficial for startups and medium-to-large businesses seeking outside investment, reducing the personal liability of their owners and optimising their tax structure.
To execute this transition, approval from all partners is required, along with submitting the necessary documentation to the Registrar of Companies, transferring assets and liabilities, and obtaining permission to begin operations as a Private Limited Company. Converting from an LLP to a Private Limited Company enables businesses to scale, raise capital, and better operations. It enhances credibility, gives better access to funding, and provides better protection for stakeholders' assets. To convert an LLP into a Private Limited Company, it is crucial to clear its outstanding debts and liabilities. An LLP cannot be involved in a legal dispute at the time of conversion.
What is a Private Limited Company?
A Private Limited Company is a business entity held by private stakeholders. It restricts the ability to transfer its shares and the liability of the owner only to the extent of capital contributed to the company. The company is registered under the Companies Act 2013, and the maximum number of shareholders in a Private Limited Company is only 50.
Advantages of Converting LLP to Pvt Ltd
The change from an LLP to a Private Limited Company offers numerous advantages:
- Improved Credibility and Legal Recognition: When an LLP is converted to a Private Limited Company, the enterprise receives greater official market recognition. The reputation and status among stakeholders are improved, and it promotes the confidence and trust of the owner as employees of the company.
- Easier Access to Funding: Private Limited Companies usually find it easier to receive funding from banks and financial institutions compared to LLPs. The organised structure of a company often instils deep trust in lenders and investors, allowing cash input for business growth.
- Ability to Raise Capital: Conversion to a Private Limited Company permits the sale of shares, allowing the company to raise capital through stock purchases. This route allows the company to attract external investors and grow its financial resources for strategic projects.
- Perpetual Succession and Transferability of Shares: Private Limited Companies offer nonstop succession. The company's existence is independent of the entry and exit of stakeholders, which ensures the continuity of business even during modifications in possession or management. The transferability of shares in a business enterprise gives shareholders the freedom to shop for, convert, or transfer ownership appeals.
- Limited Liability for Shareholders: Owners of a Private Limited Company enjoy limited legal protection. The personal assets of the stakeholders are protected from the company's debts and liabilities. This limited liability feature reduces the financial threat of running the enterprise, giving owners safety.
Tax Benefits of a Private Limited Company
|
Aspect |
Limited Liability Partnership |
Private Limited Company |
|
Tax Rate |
30% on profits and, in addition, surcharge and cess applies |
|
|
Dividend Distribution Tax (DDT) |
No DDT is imposed. Profits of the business are taxed at the entity level |
15% DDT is imposed, plus a surcharge and cess on dividends. |
|
Capital Gains Tax |
Short-term: 15% (within 3 years) Long-term: 20% (after 3 years) |
Short-term: 15% (within 3 years) Long-term: 20% (after 3 years) |
|
Tax Deductions and Exemptions |
Limited tax exemptions under Section 80C, 80G of the Income Tax Act, 1961, etc. |
A wider range of exemptions under Sections 80-IA, 80G, 35, Section 80C, 80G, of the Income Tax Act, 1961etc. |
|
Compliance Costs |
Lower, no audit required unless turnover > ₹40 lakh or capital > ₹25 lakh |
Higher compliance: Mandatory audits, AGMs, and adherence to the Companies Act, but offers credibility and trust
|
|
Loss Carry Forward & Set-off |
Losses can only be set off against future business income |
More flexible: Losses can be set off against any type of income, including capital gains |
|
Tax on Shareholder’s Income |
Share of profits taxed as personal income (based on partner’s tax slab) |
Lower tax on income: Shareholders only pay tax on dividends (DDT) and capital gains (if any), offering better post-tax returns |
Tax Deduction
|
Benefit |
Limited Liability Partnership |
Private Limited Company |
|
Business Expense Deductions |
Yes |
Yes, but with more opportunities |
| Startup Exemption |
100% deduction for 3 years. |
100% deduction for 3 years. |
|
R&D Tax Deductions |
Limited |
200% deduction on R&D expenses. |
|
Capital Gains Exemption |
Limited |
Full exemption under certain conditions. |
|
Dividend Distribution Tax |
Not applicable |
15% DDT on distributed dividends. |
Eligibility Criteria for Conversion
- The LLP must have been operational for at least one year.
- Unanimous Consent from All Partners: Every partner of the LLP must agree to the conversion. The conversion process cannot be carried out without unanimous approval.
- Clearance of Liabilities: The LLP must clear all debts, taxes, and statutory dues before initiating the conversion process.
- No ongoing Litigation: The LLP should not be involved in any litigation or legal disputes. If there are any unresolved issues, these need to be addressed before initiating the conversion process.
- DSC and DIN: The future directors of the Private Limited Company must have a Digital Signature Certificate and Director Identification Number.
- MoA and AoA: The company must comply with the required capital structure defined in the Memorandum of Association (MOA) and Articles of Association (AOA).
- Number of Members: The LLP should have at least two partners (as per LLP norms), and the converted Private Limited Company must have at least two directors and two shareholders. A Private Limited Company should have a maximum of 200 shareholders.
- Compliance with Company Formation Guidelines: When converting into a private limited company, the LLP must comply with all regulations of the Companies Act 2013.
Documents Required for Conversion of LLP to Pvt Ltd Company
The following documents are needed to convert an LLP into a Private Limited Company:
- Application for Conversion (Form FiLLiP): The form is the formal application to the Registrar of Companies (ROC) to initiate the conversion process.
- LLP Agreement and Incorporation Document: Copies of the original LLP agreement and incorporation documents will be required for legal verification and continuity.
- Latest Financial Statements: You need to provide the most recent financial statements, such as the balance sheet and the profit and loss of the LLP.
- Written Consent of the Partners: Written consent from all the partners showing they approve of the conversion to a Private Limited Company.
- Memorandum and Articles of Association: The Memorandum of Association (MOA) and Articles of Association (AOA) must be submitted for the new company, stating the company’s purpose, capital, and internal policies.
- Proof of Registered Office: A valid proof of the registered office address of the LLP or the new company.
- Identity and Address Proofs of Directors/Partners: Photocopies of identity and address proofs for all key persons involved in the LLP and the new company.
- No Objection Certificate (NOC) from the creditors
- An affidavit from every proposed director of the Private Limited Company declaring that the director is not banned from being a director and all the documents that are filed with the RoC are complete, correct, and accurate to the best of my knowledge.
Checklist for Conversion from LLP to Private Limited Company
✅ LLP must have been in existence for at least 1 year.
✅ Unanimous consent from all the partners in the LLP for conversion.
✅ Clear all liabilities (debts, taxes, pending dues).
✅ No ongoing litigation or legal disputes.
✅ At least two partners in LLP and two directors and shareholders in Pvt Ltd.
✅ Prepare Memorandum and Articles of Association (MOA & AOA) for the new company.
✅ Gather identity and address proof of directors and shareholders.
✅ Registered office proof for the new company.
✅ Obtain a No Objection Certificate (NOC) from creditors (if applicable).
✅ Ensure the capital structure of the new company is ready.
✅ Submit Form FiLLiP to the Registrar of Companies (ROC).
✅ Transfer assets and liabilities from LLP to Pvt Ltd.
✅ Obtain necessary licenses and approvals (GST, business licenses, etc.).
Common Mistakes to Avoid in the Conversion Process
❌ Failing to get unanimous consent from all partners.
❌ Not clearing all liabilities (debts, taxes, dues) before conversion.
❌ Not meeting the minimum number of partners, directors, and shareholders.
❌ Submitting incorrect or incomplete documents.
❌ Not transferring assets and liabilities properly to the new company.
❌ Overlooking business name availability and guidelines.
❌ Forgetting to obtain necessary licenses and regulatory approvals after conversion.
❌ Not verifying if the LLP has any ongoing legal disputes or litigation.
❌ Not checking if the LLP’s capital structure aligns with the new company’s needs.
❌ Not updating statutory records in accordance with the conversion.
Process of Converting LLP into Private Limited Company
The process to convert an LLP into a Private Limited Company is simple; it includes the following steps:
1. Obtain Name Approval
File the Reserve Unique Name (RUN) form with the Registrar of Companies (RoC) to secure the desired company name. Once the name is approved, it is reserved for 20 days.
2. Acquire a Digital Signature Certificate (DSC) and Director Identification Number (DIN)
Obtain DSCs for all proposed directors to facilitate electronic document signing. If the directors do not already possess DINs, apply by submitting Form DIR-3 on the Ministry of Corporate Affairs (MCA) portal.
3. Publish Public Notice
Announce the intent to convert the LLP into a Private Limited Company by publishing a notice in Form URC-2. The advertisement should be in:
- An English newspaper with wide circulation in the district where the LLP's registered office is located.
- A vernacular language newspaper of the same district.
Objection Period: Allow a 21-day window from the publication date for any objections from the public.
4. File Conversion Application (Form URC-1)
Documentation: Submit Form URC-1 to the RoC, along with:
- A list of partners and their respective capital contributions.
- Details of the first directors of the new company.
- An affidavit from each director confirming compliance with legal requirements.
- A copy of the LLP agreement.
- A statement of assets and liabilities of the LLP, certified by a chartered accountant.
- A copy of the latest income tax return filed by the LLP.
5. Draft and File Memorandum and Articles of Association (MoA and AoA)
Draft the MoA and AoA and file these documents with the RoC for approval.
6. Obtain a No Objection Certificate (NOC)
You need to obtain NOCs from all creditors showing their approval of the conversion.
7. RoC Verification and Approval
The RoC will examine the submitted documents and, upon satisfaction, will issue a Certificate of Incorporation (COI).
8. Post-Incorporation Compliance
- Update Records: Inform all relevant authorities and stakeholders about the conversion.
- Stationery Changes: Revise letterheads, invoices, and other official documents.
- Statutory Registers: Establish and maintain statutory registers as mandated for Private Limited Companies under the Companies Act, 2013.
Why Choose Kanakkupillai?
Kanakkupillai is one of the top firms of Chartered Accountants and Company Secretaries that specialises in providing expert services related to converting an LLP to a Private Limited Company. Our team of experts has extensive experience in coping with such modifications. It ensures that the method is completed quickly and in accordance with all the relevant legal guidelines and policies.
- Advice and Assistance: Benefit from expert help throughout the conversion process.
- Document Preparation: Kanakkupillai handles the preparation and filing of all necessary papers with the ROC.
- Establishment Services: Kanakkupillai helps with the company setup and gets the required licenses and approvals.
- Cost-effective: Choose Kankkupillai for transparent pricing with no hidden cost!
- Asset and Liability movement: Efficiently handle the transfer of assets and liabilities from the LLP to the new company.
Frequently Asked Questions
What is the process of converting an LLP into a Private Limited Company?
The process involves getting unanimous partner consent, submitting forms to the ROC, clearing debts, and transferring assets and liabilities.Why should I convert my LLP into a Private Limited Company?
Converting enhances credibility, offers limited liability, and makes it easier to raise funds and attract investors.What are the eligibility criteria for converting an LLP into a Private Limited Company?
The LLP must exist for at least one year, have no pending liabilities, and require unanimous consent from all partners.Do I need to clear all debts before converting an LLP to a Private Limited Company?
Yes, all liabilities, including taxes and dues, must be cleared before conversion.How long does the conversion process take?
The process generally takes around 1 to 2 months, depending on documentation and ROC approval.Can a single partner convert an LLP into a Private Limited Company?
No, you need at least two partners to convert an LLP into a Private Limited Company.What are the primary documents required for conversion?
Key documents include the LLP agreement, financial statements, partner consent, and proof of office and directors.What happens to the assets and liabilities of the LLP after conversion?
The assets and liabilities are transferred to the new Private Limited Company after conversion.Can I use the same name for my new Private Limited Company?
You can keep the same name if it is available and complies with the ROC's naming guidelines.We Provide Best Quality
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