Conversion of LLP into Private Limited Company

Ashish M. Shaji

05 Sep, 2022

A large number of SME businesses started in past 7-8 years as LLP are looking for the opportunity under the Private limited status. They are aggressively willing to convert to a private limited company due to the growth in business or for infusion of equity capital. When the new Companies Act, 2013 was enacted, it specifically had those provisions which were missing under the Companies Act, 1956. As per Section 366 of the Companies Act, it provides that any partnership firm, LLP, cooperative society, or any other business entity formed under any other law consisting of seven or more members, may at any time register under the Companies Act, 2013 as an unlimited Company or Company limited by shares by following the procedures as provided under the rules.

Procedure to be Followed for Conversion of LLP into Private Limited Company

Please ensure the following things before going for conversion:

• That for LLP, obtain the consent of the secured creditors;
• Publish a notice of such conversion; one in English and one in vernacular language to seek objections;
• There must be a minimum of 7 persons or more in the existing LLP.

Procedure:

1. Apply for DIN and DSC
2. Name approval in From INC-1
3. Preparation and filing of form URC-1
4. Filling of MOA & AOA with ROC

ROC may also ask for any further clarification if required. Once all the clarifications are provided, the certificate of the incorporation is issued by the registrar of the companies which is the conclusive evidence of company incorporation.

Section 366 of the Companies Act, 2013^[1] has enumerated that existing LLPs have an option to convert themselves into a Company, which is a welcome move by the Ministry of Corporate Affairs.

Filing Form URC-1

Once you get the approval of name, file Form URC-1 along with the following documents:

• List of members with details like name, address etc.
• List providing the first directors of the private company with details like name, address, DIN etc.
• Affidavit from persons proposed as first directors, claiming he is not banned to be a director.
• List providing the names as well as LLP partners addresses and a copy of LLP agreement and registration certificate verified by two designated LLP partners.
• A written consent or a NOC from all creditors;
• Copy of newspaper advertisement.

Why entrepreneurs have been switching over to private limited Company?

Entrepreneurs have been switching over to Private Limited Company considering the following reasons: 

1. LLPs are permitted to raise funds from Venture Capitalists and Private Equity Investors. Those who wish to actively participate in the management of the Company, approve this kind of arrangement.
2. Private limited company is more reliable and therefore it is preferred more. It is more likely to bring about business growth, both efficiently and effectively.
3. The trust of customers and vendors are less in LLP than in a private limited company.
4. LLP is generally suitable for Consulting or professional firm. LLP is not right feet for other large-scale business activity.

Conversion of LLP into a Private Limited Company: Essential points to consider

The following points may be considered:

• Obtain the engagement letter from a subscriber;
• Verification of the original records of the registered office;
• Ensure all attachments can be read clearly;
• Also ensure that the registered office of the company functions for the business purposes of the company.

Conclusion

There are various requirements which have to be satisfied in order to convert an LLP into a Private limited Company.  MCA has simplified these procedures. In case you have any other query related to Conversion of LLP, contact Enterslice.

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