Conversion of LLP to Private Company: An Overview

Many businesses in India begin their journey as a Limited Liability Partnership (LLP) but later aim to convert into a private limited company to facilitate growth and achieve greater business potential.

The Limited Liability Partnership Act, 2008, does not provide provisions for converting an LLP into a Private Limited Company. However, Section 366 of the Companies Act, 2013, and the Companies (Authorised to Register) Rules, 2014, allow for such a conversion.

LLPs are an excellent option for small businesses with an annual turnover of less than Rs. 40 lakhs and a capital contribution below Rs. 25 lakhs. These LLPs are exempt from yearly audits, whereas a private limited company must conduct an annual audit of its financial statements. However, when an LLP exceeds the threshold of Rs. 40 lakhs in turnover or Rs. 25 lakhs in capital contribution, compliance requirements become similar to those of a private limited company. This often leads LLP owners to consider converting to a Private Limited Company.

Requirements for Conversion of LLP to Private Company

Before proceeding with the conversion of an LLP to a Private Limited Company, the following conditions must be fulfilled:

1.      The LLP must have at least two partners to incorporate a Private Limited Company.

2.      Consent from all partners approving the conversion.

3.      All necessary returns of the LLP must be filed and up to date.

4.      Publication of the intent to convert must be made in at least two newspapers: one in English and another in a regional language where the registered office is located.

5.      Obtain a No Objection Certificate (NOC) from the Registrar of Companies (ROC).

Benefits of Converting LLP to Private Limited Company

1.      Brand Continuity: Retain the goodwill and brand value of the existing LLP with minimal effort in rebranding.

2.      Foreign Direct Investment (FDI): A Private Limited Company allows for 100% FDI, enabling direct investments from foreign entities or individuals.

3.      Carry Forward Losses: Losses and unabsorbed depreciation of the LLP can be carried forward after conversion.

4.      Attract Talent: Private Limited Companies can offer stock ownership or ESOP plans, making it easier to attract and retain talented employees.

5.      Enhanced Fundraising: Venture capitalists and angel investors are more inclined to invest in a Private Limited Company due to its structured compliance.

6.      Limited Liability: Liability for the owners is limited to the unpaid capital subscribed by them.

7.      No Capital Gains Tax: The conversion process does not attract capital gains tax.

8.      Name Retention: The existing LLP name can be retained by adding “Pvt. Ltd.” to it.

Registration Procedure for Conversion of LLP to Private Limited Company

The following steps outline the process for converting an LLP into a Private Limited Company:

1.      Name Approval: Submit an application to the Registrar of Companies (ROC) for name approval in e-format.

2.      Digital Signature Certificate (DSC) and Director Identification Number (DIN): All proposed directors of the Company must obtain DSC and DIN. Applications for DIN are submitted via the Ministry of Corporate Affairs (MCA) portal, supported by self-attested address proof, identity proof, and a passport-sized photograph.

3.      Filing Form URC-1: After name approval, prepare and file Form URC-1 along with all the necessary documents.

4.      Drafting Memorandum of Association (MOA) and Articles of Association (AOA): Once Form URC-1 is scrutinized and approved, draft the MOA and AOA for the new Private Limited Company.

5.      Certificate of Incorporation: After completing the above steps, the ROC will issue the Certificate of Incorporation, marking the successful conversion of the LLP into a Private Limited Company.

Documents Required for Conversion

For Conversion:

·         Address proof, identity proof, and passport-sized photographs of the applicants.

·         Copies of the latest returns filed by the LLP.

·         NOC from LLP members and the Registrar.

For Form URC-1 Filing:

·         List of members with details such as names, addresses, and shareholding.

·         List of first directors with names, addresses, DINs, and other details.

·         Affidavit from directors confirming non-disqualification under Section 164 of the Companies Act, 2013.

·         LLP agreement and certificate of registration verified by at least two partners.

·         Statement detailing the share structure and amounts involved.

·         NOC from creditors of the LLP.

·         Audited account statements within six days prior to the application.

·         Copy of the newspaper publication regarding the conversion.

Fastzeal Assistance in Converting LLP to Private Limited Company

1.      Purchase a Plan for Expert Assistance: Fastzeal provides tailored solutions to meet your conversion needs.

2.      Address Queries: Get detailed answers and support for your questions regarding the conversion process.

3.      Provide Documents: Share the required documents with Fastzeal experts.

4.      Expert Advisory: Receive end-to-end guidance and professional advice from our team.

5.      Complete the Process: Fastzeal ensures timely and smooth completion of all necessary formalities.

6.      Achieve Compliance: Get your Certificate of Incorporation and begin your journey as a Private Limited Company seamlessly.

With Fastzeal’s expert support, your transition from an LLP to a Private Limited Company will be efficient, hassle-free, and aligned with all statutory requirements.