LLP TO PRIVATE LIMITED COMPANY

ABOUT LIMITED LIABILITY PARTNERSHIP (LLP) TO PRIVATE LIMITED COMPANY

In India, private companies are one of the most common forms of business structure. They provide higher chances of growth, development and are best for raising equity capital which is not possible in case of LLP. LLP structure is not suitable if the owners require venture capitalist or private equity investors to invest in their company as they would choose to invest in a private limited company and not a partnership or LLP. The second reason for conversion is the that the FDI in case of a private limited company does not require any approval it can be done directly unlike in an LLP. Especially if the promoters or owners of the company are NRI’s or a foreigner incorporating a private limited company is a preferable choice over an LLP. Hence conversion is mandatory if the above-mentioned requirements need to be fulfilled.

ADVANTAGES

EASY FUND RAISING

Stringent registration process makes this structure more credible among other which makes fundraising or borrowing from external sources easier. The organization itself provides a number of ways to raise funds in form of private equity, ESOP, and more.

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 separate ownership and management help both – the company and the management to focus on their potential works. The shareholders assign responsibility to operate and run the company without losing control in form of voting.

LIMITED LIABILITY OF OWNERS

The obligation or debts of the company does not create a charge over the owner’s personal assets. Their liability is limited only to the capital subscribed and unpaid by them.

DOCUMENTS REQUIRED

PAN Card

PAN Card of shareholders and Directors.

Foreign nationals may provide a passport.

Identity Proof

Voter ID/ Passport/ Driving License of Shareholders and Directors

Address Proof

Telephone Bill /Electricity Bill/ Latest Bank Account Statement of Shareholders and Directors

Photograph

Latest Passport size photograph of Shareholders and Directors

Business Address Proof

Electricity Bill/ Telephone Bill of the registered office address

NOC from owner

No Objection Certificate to be obtained from the owner(s) of registered office

Rent Agreement

Rent Agreement of the registered office should be provided, if any

Note

In case of NRI or Foreign National, documents of director(s) must be notarized or apostilled.

Copy of ITR

A copy of the latest income tax return filed by the Limited Liability Partnership.

MINIMUM REQUIREMENTS

Unique Name

Mainly it builds the company brand and preferably be a coined word

Business Object

Second part of name should suggest the business activity of the company

Constitution Type

Name of the company must end with “Private Limited” as suffix

PROCESS

Approval of name

Name Approval has to be obtained from the ROC (Registrar of Companies) by submitting an application in e-format. To apply for this, you need to choose various items that are mentioned in the form INC-1. The name once accepted by the authority will be valid for 60 days.

Securing DSC and DIN

In case all members, who are future directors of the company after conversion, do not have the Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all the future directors of the company must be obtained. For obtaining the DIN, an application form must be filed on MCA portal. DIN application is processed & approved by central government via the office of regional director, the ministry of corporate affairs. The form must be accompanied by self-attested address proof and identity proof with 1 recent passport size color photo of the applicant. All the required documents should be attested by a practicing cost accountant or a practicing chartered accountant or a practicing company secretary.

Filing form no. URC – 1

After getting the approval of name from Registrar of Companies, the applicant must prepare & file the form No URC-1 in addition to the following documents.

  • List of the members with various details viz. names, address, shares held by them appropriately, etc.
  • List of the first directors of the private company with various details viz. names, address, the DIN, passport number with an expiry date, etc.
  • An affidavit from every person proposed as first directors, that he is not banned to be a director under section-164 and all the necessary documents filed with the registrar for the registration of firm must contain information which is complete and correct & true to be best of his belief and knowledge.
  • A list including the names & addresses of partners of LLP and a copy of LLP agreement & certificate of registration duly verified by two designated partners of LLP must be enclosed.
  • A statement indicating the following specifications q) the nominal share capital of firm & the number of shares into which it is separated b) the number of shares taken & the amount paid for every share c) the name of the firm, with the addition of word Limited or private limited is required.
  • A written consent or No objection certificate from all creditors.
  • Copy of newspaper advertisement, statement of accounts of the company which must not be 6 days preceding the date of the application and it must be duly certified by the auditor.

Memorandum of Association & Articles of Association

Memorandum of Association (MOA) & Articles of Association (AOA) is to be formulated and then filed with ROC after getting the name approval and sanction of form no. URC-1 – from the registrar.

The conversion process provides certain tax benefits, however for availing the same several additional requirements needs to be met, for instance, maintaining the same shareholding by the partners as was in the previous LLP when the conversion takes place, for five years from conversion the former partners of such LLP who are now shareholders in the newly formed company cannot in total have shareholding less than 50 percent.

There is another option available for the LLP which is to establish a separate private limited company and after that get the whole business transferred to the private company with the help of a written agreement, in such case the restrictions mentioned above such as need for minimum 7 partners, newspaper publication, etc. are not needed to be met. However, in this situation, there is a levy of capital gain tax. Moreover, stamp duty implication is also applicable to such transfer.