Introduction: Convert LLP Into PVT
India is a pool of new business ideas and enthusiastic entrepreneurs to give a kick to their ideas and initiate the work. Here the question comes which type of entity to go with? What if in the future I want to change the entity type, is it legally possible?
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Entrepreneurs when registering their business usually prefer to incorporate a Limited Liability Partnership or a Private Limited Company.
In a private limited company, one gets a benefit of a privately held corporate structure, in which the liability of the directors/members is limited to their shares which have their share prohibited from being publicly traded. A private limited company is an independent legal structure.
Limited Liability Partnerships (LLP) are famous since their introduction in the Companies Act, of 2013. This is because it allows individual partners to get the benefit of not getting into the concept of joint liability of partners which happens in partnership firms. These are considered as an alternative to a partnership firm under which the partners have the benefit of limited liability of a company along with the flexibility of management decisions or operations.
Several businesses started in India as Limited Liability Partnership (LLP), may wish to convert into a private limited company in order to promote their business and for growth or for infusing equity capital or to receive funding from investors.
As per the provisions under Section 366 of the Companies Act, 2013 and Company (Authorised to Register) Rules, 2014 Ministry of Corporate Affairs (MCA) has provided us with an option of converting a LLP into the company. This step can be initiated in 2 ways as enumerated below:
- Incorporation of an entirely new entity.
- Conversion of existing LLP firm into a Private Limited Company.
Reasons to covert -
One can go for the conversion of LLP into a Private Company can be for the following reasons -
- Proper organized corporate structure, which ultimately results in more credibility
- Suitable for all types of business (depending on approval from RBI or SEBI in case of a financial business)
- In case the owners have a vast vision to operate the business, a private limited firm is the best platform to start with
- Attracts investors as there is no compulsion or becoming a partner or owner. The investor can simply act as a shareholder
- Attracts foreign findings as well
- No capital gain
- Persistence of brand value
Step 1:- Conduct Board Meeting:
A board meeting is needed to be conducted with the directors and a board resolution (BR) is required to be passed bearing the following -
- Conversion of LLP into Private Company;
- The director is to be authorized for applying name in the form RUN
Consent Letters: obtain written consent from all shareholders and creditors before the conversion so that there will be no conflict in the future.
Name reservation in form RUN:
The name is required to be filled in form RUN. They must comply the rule 8 of the Companies Act, 2013. A maximum of two names can be filled in a single form.
Filing of Form URC- 1 :
- This form is submitted along with the following details -
- Members' details include - name, address, shares held
- Name, address, the DIN of the directors
- An affidavit by all the proposed directors as per section 164 of the Companies Act, 2013 stating that they are not banned from being a director.
- Drafted LLP agreement and a certificate of registration verified by designated partners of LLP.
- A statement is required which includes the details of the nominal share capital, the number of separated shares, the number of shares taken and the amount paid for each share, and the name of the company with the suffix as private limited.
- A NOC or consent letter from all the creditors is to be provided.
- Board resolution from the board of directors
- A detailed and audited statement of accounts of the company is required.
- Copy of latest income tax return
- An undertaking is required mentioning the proposed directors shall comply with the requirements of the Indian Stamp Act, 1899
Filing of SPICe, MOA, and AOA (E-form INC32, INC- 33, and INC-34):
- The company is required to draft the Memorandum of Association (MOA) and Articles of Association (AOA) and file them in e-form INC-32/ INC-33/ INC-34 i.e. final incorporation forms along with URC-1.
- The following are the points that need to keep in mind while filing the form –
- Engagement letter from a subscriber
- Professional declaration stating that he has verified all the documents from original records.
- The registered office of the company must be functioning for the business purposes of the company
- In case of omission of material fact or submission of false/incomplete/ misleading information can lead to the cancellation of the application also MCA may initiate proceedings under section 447 or can even ask the professional institute to take requisite disciplinary action against the professional.
Post-conversion requirements -
- The ROC will remove the name data of the existing Limited Liability Partnership Company
- The status of the existing Limited Liability Partnership Company will be changed to “dissolved”.
- There will be no right of LLP Company on the assets, properties, rights, interests, etc. as all of these will be transferred and owned by a Private Limited Company.
- The conversion will not impact on the existing liabilities, contracts, agreements, and employment.
Private Limited Companies are considered a more convenient entity for running a business over a company in terms of the flexibility of the operations, funding procedure, and better credibility compared to other entities. LLPs may have the benefit of lessor compliance and taxation but due to their formation structure, there can be issues in getting funding or in the expansion of the business. Private Limited Companies are more considered by new or small entrepreneurs. It is mostly suitable for professionals, manufacturers, retailers, or consulting firms.
If anyone has an entity registered as a limited liability partnership and wants to convert it into a private limited company, then they can be free to do that with just filing of forms. The forms used for the conversion of the firms require expertise. If you want to convert your LLP into a Private Limited Company, feel free to contact us.
This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not corpseed, and have not been evaluated by corpseed for accuracy, completeness, or changes in the law.
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