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Private Limited Company and Limited Liability Partnership are two different concepts and two different business forms. The main concern for business owners is which form of business benefits them the most. The Concept of LLP has emerged since the introduction of Companies Act 2013, as it is a form of business entity, which allows individual partners to be free from the concept of joint liability of partners in a partnership firm and for that reason, many business owners are turning towards the conversion of a Pvt Ltd co. to LLP.
The LLP is a separate legal entity, which is liable to the full extent of its assets but the liability of the partners is limited to their agreed contribution in the LLP. The concept of LLP has emerged and evolved because of its simplicity in formation and easy maintenance. It helps owners also to limit their liabilities. This is the biggest advantage of an LLP over a traditional partnership firm. LLP have Limited liability feature of a company and flexibility of a partnership firm. No partner is liable because of unauthorized actions of other partners, thus individual partners are protected from joint liability created by another partner’s misconduct. LLP is usually preferred by Professionals, Micro and Small businesses that are family owned or closely-held.
In this article, we will discuss about everything you need to know about converting your legal entities into LLPs.
1. Obtain Director Identification Number (DIN)
The minimum number of designated partners for the incorporation of an LLP is two. One of them must be an Indian resident. Currently, DIN is only allotted only at the time of incorporation or while adding a person as a director or designated partner in a company or an LLP. Hence, first such members need to be added as directors in the company to obtain DIN. DIN will be required for those who would become designated partners.
Further, it is important to apply for a DSC before applying for the DIN. A Body Corporate can also be a partner in a Limited Liability Partnership through a nominee.
2. Meeting of Board of Directors of Company
3. Application for Name Availability
The company will have to apply for reservation of name of LLP And GET NAME APPROVAL CERTIFICATE FROM ROC.
4. Filing of Incorporation Form with Required Documents
File E Form FiLLiP with ROC along with following Attachments:
5. Filing of Application for Conversion into LLP
Form 18 is the form for conversion of a company into an LLP. But it needs to be filed with Form for incorporation itself.
This form has information about the conversion of the company into LLP such as:
File E-FORM- 18 with ROC along with following ATTACHMENTS:
6. Certificate of Incorporation as LLP from ROC
After complying to all the formalities by the company and approved by the Ministry, ROC to issues a COI as to the conversion of LLP.
7. Drafting of Limited Liability Partnership Agreement
Contents of Agreement are:
8. Filing of E-Form-3
This form provides information about the LLP Agreement entered into between the partners. This form is to be filed in 30 days from the date of conversion of the company into an LLP.
Attachment Required: LLP Agreement
9. Filing of E-Form -14 (Intimation to ROC)
After receiving incorporation certificate of LLP it has to be filed within 15 days of the date of conversion.
ATTACHMENTS OF E-FORM 14
The following are some of the implication on the conversion of a company into an LLP:
The conversion of a company into an LLP will not attract any capital gain tax, as this conversion is not defined as transfer under the IT Act. And also, it will not attract capital gain tax with subject to the following conditions:
Below are the benefits of conversion of Private limited company into LLP:
No Minimum Capital: No minimum capital is required to form a LLP. No minimum capital contribution requirement. It can be registered even with Rs. 1000 as total capital contribution.
Audit Not Required; In case of LLP no mandatory Audit is required. The audit is required only when the turnover of the company exceeds Rs 40 lakhs and where the contribution exceeds Rs 25 lakhs.
Easy Transfer; Interest in LLP can be easily transferred by introducing new Designated Partner. LLP is a separate legal entity and changing a Designated Partner does not affect its existence.
Separate Legal Entity: LLP enjoys the benefit of Separate Legal Identity in the eyes of law, which clearly states that assets and liabilities of the business are not the assets and liabilities of the Partners.
Tax Benefits: It is also exempted from various taxes such as dividend distribution tax and minimum alternative tax. The rate of tax on LLP is less than as compared to the company.
Multiple Relationships: A person can be a partner, employee or creditor of a Limited Liability Partnership. There can be different contracts with the same person in different capacities.
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