How to Convert LLP into PVT
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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 future I want to change the entity type, is it legally possible?
Entrepreneurs when registering their business usually prefers to incorporate a limited Liability Partnership or a Private Limited Company.
In a private limited company one gets a benefit of privately held corporate structure, and in which 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 Companies Act, 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 firm. These are considered as an alternative of partnership firm which under which the partners have a benefit of limited liability of a company along with 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 the growth or for infusing equity capital or to receive funding from investor.
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 company. This step can be initiated in 2 ways as enumerated below:
1. Incorporation of an entirely new entity.
2. Conversion of existing LLP firm into a Private Limited Company.
Reasons to covert -
One can go for the conversion of LLP into Private Company can be for following reasons -
- Proper organised corporate structure, which ultimately results in more credibility
- Suitable for all types of business (depending on approval from RBI or SEBI in case of 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 be simply act as share holder
- 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 passes bearing the following -
- Conversion of LLP into Private Company;
- Director is to be authorised for applying name in form RUN
Consent Letters: obtain a written consent from all shareholders and creditors before the conversion so that there will be no conflict in future.
Name reservation in form RUN:
The name is required to be filled in form RUN. The must comply the rule 8 of the Companies Act, 2013. Maximum two names can be filled in single form.
Filing of Form URC- 1 :
- This form is submitted along with following details -
- Members details includes - 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, 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
- Detailed and audited statement of accounts of the company is required.
- Copy of latest income tax return
- An undertaking is require mentioning the proposed directors shall comply with the requirements of Indian Stamp Act, 1899
Filing of SPICe, MOA and AOA (E-form INC32, INC- 33 and INC-34):
- Company 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.
- Following are the pints that need to keep in mind while filing the form –
- Engagement letter from 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 existing Limited Liability Partnership Company will be changed to “dissolved”.
- There will no right of LLP Company on the assets, properties, rights, interests etc. as all of these will be transferred and owned by Private Limited Company.
- The conversion will not impact on the existing liabilities, contracts, agreements and employment.
Private Limited Companies are considered as more convenient entity for running a business over a company in terms of the flexibility of the operations, funding procedure and better credibility comparative to other entities. LLPs may have a benefit of lessor compliance and taxation but due to its formation structure there can be issue in getting funding or in expansion of the business. Private Limited Companies are more considered by new or small entrepreneurs. It is mostly suitable for the professionals, manufacturing, retailers or consulting firms.
If anyone has an entity registered as limited liability partnership and want to convert it into a private limited company, then they can free to do that with just filing of forms. The forms used for the conversion of the firms, require an expertise. If you want to convert your LLP into Private Limited Company, feel free to contact us.