Conversion of LLP to Private Limited Company

An LLP (Limited Liability Partnership) is one of the simplest forms of incorporated business in India. It is easy to start and has lighter compliance requirements compared to a Private Limited Company. There's no set rule for whether a business should start as an LLP or a Private Limited Company. Legally, there are no restrictions on the types of businesses that can operate as an LLP. However, the LLP structure is particularly suitable for professionals such as Architects, Doctors, Engineers, Chartered Accountants (CAs), Company Secretaries (CS), and Lawyers.

Due to fewer compliance requirements, small businesses and startups often prefer an LLP over a Private Limited Company. For an LLP, a statutory audit by a Chartered Accountant (CA) is mandatory only when the turnover exceeds ₹40 lakhs or the capital exceeds ₹25 lakhs. As the LLP grows, its compliance requirements begin to resemble those of a Private Limited Company. Additionally, while an LLP is investor-friendly, any change in ownership requires an amendment to the LLP agreement. In contrast, ownership changes are much simpler in a Private Limited Company.

As a result, many LLPs opt to convert into Private Limited Companies. Setindiabiz offers end-to-end services for the seamless conversion of your LLP into a Private Limited Company.

Eligibility Requirements for Converting LLP to a Private Limited Company

• The LLP must have a minimum of two partners to be eligible for conversion into a Private Limited Company.
• All partners must provide their consent to the conversion from LLP to a Private Limited Company.
• The LLP must have filed all its statutory returns and the LLP agreement.
• The name of the LLP will remain the same, with the term "LLP" being replaced by "Private Limited." No changes to the name are allowed.
• The capital contribution in the LLP will be transferred as the company's share capital, and all LLP partners will become shareholders in the newly formed Private Limited Company.

Step-by-Step Process for Converting an LLP into a Company

1. Consent from All Partners of the LLP
   The process begins with a meeting of all partners to obtain unanimous approval for converting the LLP into a Private Limited Company, as per Section 366 of the Companies Act, 2013. During this meeting, two partners must be authorized to sign and execute all necessary documents for the conversion.

2. Newspaper Publication
   The intention to convert the LLP into a Private Limited Company must be published in two newspapers with circulation in the district—one in the local vernacular language and the other in an English daily. This public notice must be issued at least 21 clear days before filing the URC-1 form.

3. NOC from ROC and Creditors
   A No Objection Certificate (NOC) from the Registrar of Companies (ROC) where the LLP is registered is required. Additionally, creditors must provide their unconditional consent for the conversion. If the LLP has no liabilities, a signed statement from the partners confirming this must be submitted.

4. Apply for Name Reservation via RUN
   An application for name reservation must be filed through the RUN (Reserve Unique Name) online form with the ROC. The LLP’s name must remain unchanged, but the term “LLP” will be replaced with “Private Limited.”

5. File URC-1, MOA, AOA, DIR-2 Forms, and Spice Plus
   Within 30 days of reserving the company name, the application for conversion must be filed using the URC-1 form, along with the Spice Plus form, e-MOA, e-AOA, and other necessary documents. Once the forms are approved, the ROC will issue a new certificate of incorporation in the name of the newly formed Private Limited Company.

Documents Required for Converting an LLP into a Company

A. Documents Required for Conversion of LLP into a Company:

1. A list of all partners along with their detailed information.
2. A declaration from the proposed directors confirming the details of all partners.
3. An affidavit from all partners stating the dissolution of the LLP.
4. A newspaper advertisement regarding the conversion.
5. Certificate of registration of the LLP.
6. The LLP agreement.
7. A statement of assets and liabilities certified by a Chartered Accountant (CA).
8. A copy of the LLP’s income tax return.
9. A newspaper advertisement as per URC-2.
10. No Objection Certificate (NOC) from the creditors.
11. No Objection Certificate (NOC) from the ROC where the LLP is registered.

B. Documents to Attach in E-form Spice+:

1. DIR-2 declaration from all proposed directors.
2. Identity and address proof of all directors.
3. Proof of the registered office address.

Benefits of Converting LLP to Private Limited Company

Step 1: Retain and Enhance Brand Value
Upon converting the LLP to a Private Limited Company, the new entity inherits the LLP's legacy and reputation, preserving the brand's goodwill. The Intellectual Property Rights (IPR) of the LLP are seamlessly transferred to the Private Limited Company without any capital gains tax.

Step 2: Carry Forward Accumulated Losses and Depreciation
Under the Income Tax Act, any unabsorbed losses or depreciation from the LLP are carried forward to the newly converted Private Limited Company, providing significant tax advantages.

Step 3: Easier Fundraising
Investors prefer Private Limited Companies due to the ease of share allotment and legal provisions such as private placement and valuation. Additionally, the details of the Private Limited Company are accessible and verifiable through the Ministry of Corporate Affairs (MCA).

Step 4: Employee Stock Option Plans (ESOPs)
As companies grow, offering Employee Stock Options (ESOPs) becomes essential for retaining talent, especially in sectors like IT. ESOPs can only be implemented in a company, with specific regulations that require the ESOP plan to be registered with the Registrar of Companies.

Step 5: No Capital Gains Tax
When converting an LLP into a Private Limited Company, the assets of the LLP are transferred without incurring capital gains tax. This is because the LLP is replaced by the company, and no capital gains tax applies to this transition.

Provisions for Converting LLP into Private Limited Company