Winding up is the process wherein a company sells all of its business assets for paying off its...
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.
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.
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:
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.
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.
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:
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.
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.
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.
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