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Convert LLP to Pvt. Ltd.

  • Convert LLP to Pvt. Ltd.

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“Converting Your LLP to a Private Limited Company: A Brief Overview

 

In India, many businesses begin their journey as a Limited Liability Partnership (LLP) but eventually consider converting into a Private Limited Company to facilitate growth and enhance their prospects.

 

While the Limited Liability Partnership Act of 2008 does not contain provisions for LLP-to-Private Limited Company conversion, Section 366 of the Companies Act, 2013, and the Company (Authorised to Register) Rules, 2014, allow for such a transformation.

 

LLPs are an excellent choice for small businesses with annual sales turnover below Rs 40 lakhs and capital contributions under Rs 25 lakhs. LLPs meeting these criteria are exempt from yearly audits. In contrast, Private Limited Companies are obligated to conduct an annual financial statement audit. If an LLP’s annual turnover exceeds Rs 40 lakhs or capital contributions surpass Rs 25 lakhs, the compliance requirements for both Private Limited Companies and LLPs become nearly identical. This often prompts LLP owners to consider converting into a Private Limited Company.

 

This conversion can offer various benefits to businesses seeking increased growth and compliance with audit standards.”

 

 

“Why Convert an LLP to a Private Limited Company?

  1. Business Growth: LLPs choose this path to facilitate growth and expand their operations.

 

  1. Attracting Investors: LLPs might initially attract only limited types of investors. Conversion opens doors to foreign and equity investors, broadening investment possibilities.

 

  1. Equity Share Capital: Some LLPs opt for conversion to issue equity share capital within the Private Limited Company structure.

 

  1. Tax Benefits: Conversion can help manage capital gains taxes more effectively.

 

  1. Utilizing Past Losses: LLPs can carry forward unabsorbed losses and depreciation from previous years, optimizing their financial standing.

 

  1. Preserving Brand Identity: The desire to maintain the brand name and goodwill established as an LLP often drives the decision to convert to a Company.”

 

 

 

“Conditions for Changing an LLP to a Private Company:

  1. You need a minimum of two partners for the conversion to a Private Limited company.
  2. All partners should agree to the LLP’s conversion.
  3. The LLP should have completed all the necessary paperwork.
  4. An announcement about this conversion must be published in at least two newspapers, one in English and another in a local language where the registered office is located.
  5. You’ll need a No Objection Certificate from the Registrar.”

 

 

“Advantages of Converting an LLP into a Private Limited Company:

  1. Brand Continuity: Your brand identity remains intact after the conversion, eliminating the need for additional advertising efforts.

 

  1. Foreign Investment: A Private Limited Company allows 100% Foreign Direct Investment (FDI), enabling foreign investors, whether individuals or entities, to invest directly in your company.

 

  1. Tax Benefits: You save on bookkeeping expenses as losses and depreciation incurred during the LLP phase are carried forward upon conversion.

 

  1. Attracting Talent: Private Limited Companies can offer stock ownership and Employee Stock Ownership Plans (ESOPs), making it easier to attract and retain talented employees through enticing incentive programs.

 

  1. Funding Opportunities: Private and Public Companies are better positioned to raise capital from venture capitalists and angel investors. A rigorous registration process enhances your company’s credibility, simplifying fundraising from external sources.

 

  1. Limited Liability: Your liability is limited to the capital you’ve subscribed and any unpaid amount. This offers personal financial protection.

 

  1. Tax Benefits: Private Limited Companies enjoy the advantage of no capital gains tax.

 

  1. Easy Transition: The conversion process involves adding ‘Pvt. Ltd.’ to the end of your existing LLP name, ensuring a seamless transition.

 

 

 

“Required Documents for Converting an LLP to a Private Limited Company

  1. Proof of your current address
  2. Your identity proof
  3. Passport-sized photographs
  4. The latest LLP returns
  5. NOC from LLP members and the Registrar

 

You will also need these documents when filing Form URC-1:

 

  1. A list of members with their details, including names, addresses, and shareholdings.
  2. Details of the first directors, including names, addresses, DIN, and passport numbers.
  3. Affidavits from all first directors, confirming their eligibility and the accuracy of submitted information.
  4. Information about LLP partners, including names and addresses.
  5. The LLP agreement and registration certificate, verified by at least two LLP members.
  6. Details about the Company’s shares and their distribution.
  7. Consent or NOC from all LLP creditors.
  8. An auditor-certified account statement from six days before the application date.
  9. A copy of the newspaper where the conversion was published.”

 

 

Converting an LLP into a Private Limited Company: A Step-by-Step Guide

  1. Name Approval:

– Start by applying for ‘Name Approval’ with the Registrar of Companies (ROC) in electronic format. This ensures that your desired company name is unique and available.

 

  1. Securing DSC and DIN:

– All seven directors of the new Private Limited Company must obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN).

– You can apply for DIN on the Ministry of Corporate Affairs portal. The Central Government will approve your DIN application through the regional director’s office.

– Don’t forget to self-attest your application, including address proof and identity proof, and attach a passport-sized photo of the applicant.

 

  1. Filing of Form URC-1:

– After securing name approval from the ROC, you must prepare and submit Form No. URC-1 along with all the necessary documents.

 

  1. Memorandum of Association and Articles of Association:

– Once the company name is approved and the ROC reviews Form no. UGC-1, the ROC will issue Form URC-1.

– At this stage, your company will need to draft its Memorandum of Association (MOA) and Articles of Association (AOA).

 

Upon completing these steps, your LLP will successfully convert into a Private Limited Company. The ROC will issue a Certificate of Incorporation for your newly transformed Private Limited Company.

 

 

BusinessBadhega Helps You Convert Your LLP to a Private Limited Company!

 

  1. Choose a Plan for Expert Guidance
  2. Share Your Queries About the Conversion
  3. Provide Necessary Documents to Our BusinessBadhega Expert
  4. Receive Comprehensive Assistance and Advice Throughout the Conversion Process
  5. Complete All Essential Actions
  6. Get the Job Done!

 

Make Your Transition Smooth and Successful with BusinessBadhega.

Service frequently asked questions

  • The process involves several steps, including obtaining the approval of the majority of partners, obtaining name approval, filing the necessary documents, and making changes to the LLP agreement. A detailed guide is available on the Ministry of Corporate Affairs (MCA) website.

  • A Private Limited Company offers advantages such as limited liability, easier access to funding, and increased credibility in the market, which can be beneficial for growth and expansion.

  • Yes, an LLP with foreign partners can convert to a Private Limited Company, but specific approvals from relevant authorities may be required, and Foreign Exchange Management Act (FEMA) regulations must be complied with.

  • Yes, the LLP must change its name to reflect its new status as a Private Limited Company, and this name must be approved by the Registrar of Companies.

  • After conversion, the company must adhere to the compliance requirements applicable to Private Limited Companies, including conducting annual audits, filing annual financial statements, and conducting annual general meetings.

  • The timeline can vary, but it usually takes a few months to complete the entire process, including obtaining approvals, making amendments, and obtaining the new certificate of incorporation.

  • Tax implications should be considered carefully, as they can vary depending on the specific case. It's advisable to consult a tax expert for guidance on tax-related matters.

  • It's essential to resolve outstanding debts or legal issues before initiating the conversion process, as these issues may impact the conversion and can lead to complications.

  • A Private Limited Company is required to have a minimum authorized and paid-up share capital. The specific amount depends on the regulations and can vary.

  • Yes, you can continue with the same business activities after conversion, but you must inform the Registrar of Companies about any changes in the nature of the business.