How to Convert an LLP into a Private Limited Company?

When is LLP the Best Choice?

Limited Liability Partnership (LLP) is Ideal for service sectors, professionals, startups, and small businesses seeking Limited Liability, aiming to reduce annual compliance and audit costs. It is also suitable for those not looking to secure funds from Angel Investors or Venture Capital firms in the initial phase and not intending to issue shares to employees through ESOP.

When is a Private Limited Company the Best Choice?

A private Limited Company is suitable for those investors who are big businesses, startups, and capital-intensive businesses and need funding from Venture Capitalists and Investors, need borrowings from banks, need foreign funding, and offer ESOPs to employees.

What are the Benefits of Converting LLP into a Private Limited Company?

Here are the advantages of transforming an LLP into a private limited company:

• Facilitated Growth: Converting to a private limited company supports business growth and expansion.
• Convenient Capital Raising: Private limited companies find it more convenient to attract investments from investors compared to LLPs. Equity can be offered to make them business partners, or debentures can be issued to secure debt capital.
• Flexible Share Issuance: Companies can increase capital at any time by issuing equity shares. Additionally, employee bonuses in the form of ESOPs can be allocated.
• Lower Taxation: Companies enjoy a lower income tax rate of 25%, as opposed to LLPs with a flat rate of 30%.
• Tax Benefits: The conversion from LLP to a company is exempt from capital gains tax. It also permits the carryforward of unabsorbed depreciation and losses.
• Potential for Public Listing: Private limited companies have the flexibility to be transformed into public limited companies in the future, facilitating expanded operations and the potential to raise capital from the public.
• Preservation of Goodwill: Converting from an LLP to a private limited company allows the business to retain its established brand name and goodwill.
• Enhanced Foreign Investments: Private limited companies generally encounter fewer hurdles in attracting investments from foreign investors compared to LLPs.

What are the Conditions for Conversion of LLP into Private Limited Company?

The following conditions need to be satisfied to convert an LLP into a Private Limited Company -

• An LLP should have a minimum of 2 partners who can become the Director and the Shareholder each.
• All the partners of an LLP should approve of the conversion of the LLP into a Private Company.
• The LLP should have complied with all the statutory compliance requirements.
• The conversion of LLP to a Private Limited Company has to be published in at least 2 newspapers. One in a vernacular language and one in English language.
• You also need to obtain a No Objection Certificate from the registrar.

What is the Process of Conversion of LLP into Private Limited Company?

Given below are the ways in which an LLP can be converted into a Private Limited Company. All you have to do is follow these steps to ensure a smooth conversion -

Step 1. Obtain Name Approval
Obtain the approval for the name of your company from the Registrar of Companies (ROC) by submitting the Reserve Unique Name (RUN) form. This must be in electronic or digital format.

Step 2. Sending DSC and DIN
Once you have obtained the name approval, apply for a Digital Signature Certificate (DSC) and the Director Identification Number (DIN) for the members of the LLP who will become the directors of the Private Limited Company after the conversion.

Step 3. Filing of Form URC-1
Next, you need to file Form URC-1 and furnish the following documents along with it -

• Details such as address, name, and shares held by the members along with the member’s list.
• Provide details like name, address, DIN number, and Passport number including the expiry date of all the directors of the private limited company.
• An affidavit is needed from the first directors of the private limited company. This affidavit should state that the LLP member is not banned from being a director.
• File all the mandatory documents with the Registrar of Companies for company registration.
• Provide a copy of the Limited Liability Partnership Agreement along with a list containing the address and name of the partners of the LLP and a certified copy of registration verified by at least 2 partners of the LLP.
• Provide a statement with the details of the nominal share capital of the firm, the number of shares taken and the amount remitted for each share, the name of the firm with the word private limited, and the number of shares separated.
• Provide no-objection certificate from all creditors.
• You also need to provide a certified accounts statement of the company.

Step 4. Drafting Memorandum of Association and Articles of Association
Draft the Articles of Association (AOA) and Memorandum of Association (MOA) and submit them to the Registrar of Companies (ROC). Upon getting the approval of the company name, URC-1 is sanctioned by the Register of Companies.

Now that you are aware of the various aspects of LLP conversion to a Private Limited Company in India and the important documents and steps required, you can go ahead and apply for the same. There are various tax benefits of converting an LLP into a private limited company. If you still need assistance regarding tax implications on the conversion of LLP into a private company, you can consult our tax experts who can give you tailored advice as per your needs.

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