Convert LLP to Private Limited Company
Conversion of LLP into private limited company
In India, the conversion of a Limited Liability Partnership (LLP) into a Private Limited Company is a strategic step for businesses seeking to expand, attract investors, and enhance their corporate stature. This process allows a business to transition from a flexible partnership structure to a more formal corporate entity, gaining access to greater credibility, easier funding options, and better growth potential.
Conversion of LLP into private limited company
Access to Capital: Private Limited Companies can raise equity capital by issuing shares, which is a significant advantage when seeking investments from venture capitalists, angel investors, or through private placements.
Separate Legal Entity: Like LLPs, Private Limited Companies are separate legal entities, but they have more recognition and trust in the business world, especially with financial institutions.
Limited Liability: The liability of shareholders in a Private Limited Company is limited to the unpaid amount on their shares, protecting personal assets.
Perpetual Succession: A Private Limited Company enjoys perpetual succession, meaning it continues to exist even if there are changes in ownership or management.
Tax Benefits: Private Limited Companies can benefit from lower tax rates, exemptions, and deductions that might not be available to LLPs.
Enhanced Credibility: A Private Limited Company is generally seen as more credible than an LLP, particularly when dealing with larger clients, investors, and government agencies.
Eligibility Criteria for Conversion:
Partner Approval: All partners of the LLP must approve the conversion and adopt a resolution to that effect.
Minimum Shareholders and Directors: The company must have at least two shareholders and two directors, with at least one director being an Indian resident.
No Outstanding Debt: The LLP should not have any outstanding debts or liabilities at the time of conversion.
Compliance with Laws: The LLP must comply with the provisions of the Companies Act, 2013, and the LLP Act, 2008, throughout the conversion process.
Step-by-Step Process for Conversion:
DSC and DIN Number:
- Obtain DSCs for the directors and apply for DINs if they don’t already have them.
Name Reservation:
- Apply for name reservation through the RUN (Reserve Unique Name) form on the Ministry of Corporate Affairs (MCA) portal. Ensure the name is unique and adheres to the naming guidelines under the Companies Act, 2013.
Drafting of Memorandum and Articles of Association (MoA & AoA):
- Draft the Memorandum of Association (MoA) and Articles of Association (AoA) for the new company. These documents outline the company’s objectives, rules, and internal regulations.
Filing Conversion Application:
- Submit the application for conversion (Form URC-1) to the Registrar of Companies (ROC), along with required documents such as a list of partners, a statement of assets and liabilities, and a declaration of compliance.
Incorporation of the Private Limited Company:
- Once the ROC is satisfied with the documents, a Certificate of Incorporation is issued, marking the official transition of the LLP into a Private Limited Company.
Post-Incorporation Compliance:
- After incorporation, comply with all statutory requirements such as maintaining registers, issuing share certificates, and ensuring the company follows all regulations under the Companies Act, 2013.
Benefits of converting LLP into limited company
Easy Fund raising
The rigorous registration process enhances the credibility of this structure compared to others, facilitating easier fundraising or securing loans from external sources. Additionally, the organization offers various avenues for raising capital, such as private equity, employee stock ownership plans (ESOPs), and other methods.
ESOPs to employees
Only private limited companies can offer stock ownership and ESOP plans. It attracts employees as it creates an incentive for them to work in the company and advantage with its growth and prosperity.
Separate Legal Existence
The distinction between ownership and management allows both the company and its executives to concentrate on their respective strengths. Shareholders delegate the responsibility of operating and managing the company while retaining control through voting rights.
Limited Liability of Owners
Only private limited companies can offer stock options and ESOP schemes. These incentives can draw employees by motivating them to contribute to the company’s success and share in its growth and achievements.
Documents required for conversion into Private Company
PAN Card
PAN Card of all partners and the firm Foreign nationals may provide passport
NOC from owner
No Objection Certificate to be obtained from the owner of registered office
Copy of ITR
A copy of the latest income tax return filed by the Limited Liability Partnership.
ID Proof
Aadhar Card/ Voter ID/ Passport/ Driving License of all partners
Rent Agreement
Rent Agreement of the registered office should be provided, if any
Photograph
Latest Passport size photograph of all partners
RoF
Certificate In case the partnership firm is registered, RoF certificate is compulsory
Business Address Proof
Electricity Bill/ Telephone Bill of the registered office address
Note
In case of NRI or Foreign National, documents of partner must be notarized or apostilled
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Formulation of LLP Name
Unique Name
Mainly it builds the LLP’s brand and preferably be a coined word
Business Object
Second part of the name should suggest a business activity of the LLP
Constitution Type
Name of the LLP must end with “LLP” or “Limited Liability Partnership” as suffix