Conversion of company is a sort of issue because LLPs have a certain amount of benefit over other companies. They are as follows-

  • The internal structure of an LLP can be easily handled in comparison to that of other companies.
  • The maximum limit of shareholders is not limited in an LLP. The LLP can have any desired number of shareholders. However, the maximum number of shareholders is fixed in a private company.
  • Management of funds depends entirely on the members’ wish.
  • LLP doesn’t have to pay the Dividend Distribution Tax which is to be paid by the companies. Also, LLPs save MAT tax and income tax due to interest and remuneration payable to partners.
  • Apart from this, LLPs include lesser forms and are easier to form run and manage.

In short, LLPs involve the best practices of private companies and also protect the freedom of partners, giving them the ability to decide the norms of the company. Thus it combines the best features of various kinds of businesses.

Other Benefits

The Finance Bill 2010 stated that the capital gain tax will not be levied on conversion to an LLP if certain conditions are adhered to.

Requirements for conversion of company into LLP

  • Every member of the company must agree with the decision of conversion.
  • All the members become the partners of an LLP.
  • The latest copy of Income tax return is to be filed with ROC.
  • Not just the members, all the creditors of the company must also agree with the conversion.
  • Under Companies Act, no prosecution should have been initiated procedure to be followed

    1. Obtain DPIN (Form DIR-3)

The designated partners, who don’t already have a DIN must file for obtaining one.

The minimum number of partners for the incorporation of an LLP is two and also one of them must be Indian. But it is very important to file for a DSC before applying for the DIN.

A Body Corporate can also be a partner in an LLP through a nominee.

        2. Meeting of board of directors of the Company                      

  • Call for a meeting of all the board members
  • Pass a resolution by a majority of the members for the conversion of the company to an LLP
  • Pass Resolution to authorize any director for application of the Name of LLP.

        3. File Form 1

Form 1 is to be filled for registering the name of the company. The name of the company can be changed into the name of the LLP.

The following information is to be entered in Form 1:

  • Name of the partners
  • Address of the office of the LLP
  • Proposed business activity of the LLP
  • Capital contributed by the partners
  • Importance of the chosen name

The resolution of the company authenticating the conversion of the company into an LLP is to be attached along with the form. Also, the form must be digitally signed by the applicant using DSC.

        4. Draft the LLP agreement

The mutual rights of the partners and those of the LLP and partners are decided by a mutual agreement between the partners or between the LLP and the partners. This agreement is called LLP Agreement.

Contents of Agreement are:

-Name of LLP
-Name of Partners & Designated Partners
-Form of contribution
-Profit Sharing ratio
-Rights & Duties of Partners
-Proposed Business
-Rules for governing the LLP

        5. File Incorporation Documents in Form-2

This form basically contains the location of the office, the contribution of every partner and other details of the directors.

  • This form has basic information about the LLP as given in Form 1.
  •  Location of the LLP’s office.
  •  Capital contribution of the designated partners.
  •  number and name of LLPs the director are already a part of.

Attachments with Form 2 are:

  • A copy of Board Resolution of the company which is becoming designated partner through a nominee.
  • mandatory to attach a proof of the registered office.
  •  Subscriber sheet in the prescribed format.

        6. File Form-18 for Application for Conversion

This is the sole form for the conversion of company into an LLP. It needs to be filled with form 2 itself.

This form has information about the conversion of company such as:

  • Whether any permission is needed for conversion?
  • Whether all shareholders have become partners of the LLP?
  • Whether all shareholders have agreed/consented to conversion?
  • Whether any prosecution or proceeding is initiated against the company?
  • Whether the company has filed up to date Income Tax Returns?
  • Whether the company has filed latest financial statements with ROC?
  • Whether there are secured creditors in the company?

Attachments with LLP Form-18:

  • Copy of acknowledgment of latest income tax return (Mandatory)
  • List of all the secured creditors along with their consent (Mandatory if where there are secured creditors of the company and consent of all the secured creditors for conversion of company into limited liability partnership has been obtained)
  • Approval from any other body/ authority (Mandatory if applicable approvals from the concerned body/ authority or authorities is required and have been obtained)
  • Statement of Assets and Liabilities of the company duly certified as true and correct by the auditor (Mandatory, the statement should contain the latest place as on date of application for conversion)
  • Statement of shareholders of the Company (Mandatory to be attached)

Prerequisites for filing LLP Form-18

  • No e-Forms should be pending for payment or processing in respect of the company.
  • No open (unsatisfied) charges should be pending against the company.
  • The company should be having share capital.
  • The company should not be a ‘Section 25 company’/ Section 8 Company under Companies Act, 2013.
  • At least one balance sheet and annual return should have been filed by the company after its incorporation.

        7. File Form-3

This form requires you to enter details of the LLP Agreement, mutually entered by the partners of the LLP.

        8. Obtain certificate of incorporation

        9. File Form-14 with the Registrar

To personally inform the registrar about the conversion, form 14 must be filled within 15 days after receiving the COI.

LegalRaasta can help you in company conversion into LLP.