Conversion of LLP into Company as per Companies Act 2013

Narendra Kumar

31 Jan, 2020

Are you operating a Limited Liability Partnership (LLP)?  Are you in the process of expanding your business?  Well, operating an LLP form of business organization can be a hurdle as other form of business organizations offers better opportunities for the growth & expansion of the business. Therefore, the amazing benefits offered by the other organizational structures will attract the shareholders. Thus, that would lead to the conversion of LLP into Private Limited Company. 

Previous Scenario of Conversion of LLP into Company

Earlier it was not possible to convert the LLP into a Private Limited company. However, now after the introduction of Section 366 of the Companies Act, 2013 LLP can be converted to a Private Limited Company.

The whole process of such conversion is provided under the Companies (Authorized to Register) Rules, 2014.

Requirements of Conversion of LLP into Company

For an LLP to be converted into a Private Limited Company there are many requirements which need to be fulfilled.  The LLP must have minimum 2 partners, a NOC from the Registrar of Companies where the LLP is registered, an advertisement for conversion needs to be sent in one national and local newspaper are some of the basic requirements which are to be satisfied by the LLP and thereafter the following process is to be followed for converting it into a Private Limited Company:

Approval of Name

To get the name approved from the ROC, one needs to submit RUN (Reserve Unique Name) form which is in e-format. Various items are to be filled in while submitting the RUN form.  Also, the name which is approved by the ROC is available for use only for twenty days in case of a new company and sixty days in case of change of name of existing company.

Securing DSC And DIN

Apply for the Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all the members of the LLP who after the conversion will be the directors of the Private Limited Company, in case if they don’t have it. 

A self- attested address proof, identity proof and one recent passport size colour photo of the applicant have to be provided along with the application. DIN can be obtained directly through filing incorporation form.

Filing of Form URC – 1

Once, the ROC approves the name; form URC-1 has to be filed by the applicant. The following are the list of documents which are to be submitted along with the form URC-1:

1. Details like name, address, shares held by the members are to be provided along with the list of members.
2. Names, address, the DIN, passport number with an expiry date of all the first directors of the Private Limited company has to be provided.
3. As per section 164 of the Companies Act, 2013, an affidavit has to be provided by all the proposed first directors of the Private Limited Company stating that they are not banned from being a director. Also, all the necessary documents to be filed with the ROC for the registration of the company should consist of such information which is complete and correct and accurate to the best of their belief and knowledge. 
4. A copy of LLP agreement along with a list consisting of the names and addresses of partners of LLP and a certificate of registration which is duly verified by two designated partners of LLP has to be provided.
5. A statement to be provided which has the details of the nominal share capital of the firm and the number of shares into which it is separated, the number of shares taken and the amount paid for each share and the name of the firm with the addition of word private limited.
6. A no objection certificate from all the creditors is to be provided.
7. A duly certified statement of accounts of the company by the auditor which must not be of 6 days preceding the date of application and copy of the newspaper advertisement is to be provided.

Memorandum of Association & Articles of Association

A Memorandum of Association (MOA) & Articles of Association (AOA) is to be drafted and then submitted to the ROC, once the name of the company is approved and form URC -1 is sanctioned by the ROC.

Benefits of Conversion of LLP into Private Limited Company

Tax benefits are one of the biggest reasons for the conversion process. However, to receive the tax benefits there are many requirements which are to be satisfied, for example, maintaining the same shareholding  of the partners as that of the LLP during the conversion process, the former partners of LLP cannot have a total shareholding which is less than 50 percent for consecutive five years in the newly incorporated private limited company.

Other Method to Convert LLP into Private Limited Company

Apart from the above-mentioned process of conversion of LLP into Private Limited Company, there is one more way available for the LLP to get converted into Private Limited company.

An altogether different private limited company be incorporated and thereafter, get the whole business of the LLP transferred to the private limited company through a written agreement.

However, in such a case, the restrictions as above- mentioned like the need for a minimum of two partners, advertisement in a newspaper, etc. are not at all necessary. In this method, the only issue is that a capital gain tax is levied.  Stamp duty is also applicable during such transfer.

Also Read: Conversion of Company into LLP Constitutes Transfer

Conclusion

Probably the biggest reason for an LLP to convert itself into a Private Limited company is the capital gain. Also, the LLP converted into Private Limited company will have many options to raise capital for the expansion of its business.

Thus, the introduction of section 366 of the Companies Act, 2013 has been a boon to many LLPs across the country.

For more information, please contact Enterslice