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.

• Each member of the company requires agreeing with the choice of conversion.
• All members of the Private Limited Company will become the partners of the LLP.
• The most up-to-date copy of Income tax return must be filed with the Registrar of Companies.
• Not only the members, but also all the creditors of the private company must agree with the conversion.
• According to Companies Act, no prosecution should start any process to be followed

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

• Call a meeting of the Board of Directors. 
• Pass requisite Resolution for Conversion of Company into LLP.  
• Pass requisite Resolution to authorize any director to file all the necessary forms with MCA.
• Requisite resolution to authorize any director to file all the necessary forms with MCA. 

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:

• Address proof of the registered office of LLP. 
• The subscription sheets. 
• Consent to act as a designated partners and partners
• Identity and Resident proofs of designated partners and partners 
• Detail of LLP(s) and/ or company(s) in which partner/ designated partner is a director/ designated partner.

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: 

• Whether all the shareholders of the company have given their consent for the conversion of a company into the LLP.
• If all the partners of the LLP comprise all the shareholders of the company and no one else. 
• An up to date Income-tax return is file as per Income tax act, 1961.
• Documents including the latest balance sheet and annual returns under the Companies Act, 2013 filed with MCA.
• Validating if any conviction, ruling, order, a judgment of any Court, Tribunal or other authority in favour of or against the company is subsisting as on date?
• Getting to know regarding any security interest in the assets of the company is subsisting or still in force. 
• Whether any earlier application for conversion of the said company into limited liability partnership was refused by the Registrar. 
• If there is a presence of any secured creditors.

File E-FORM- 18 with ROC along with following ATTACHMENTS: 

• Statement of the consent of shareholders (Mandatory) 
• Statement of accounts of the company certified as true and correct by the independent auditor 
• List of all the secured creditors along with their consent 
• Copy of acknowledgement of latest income tax return (Mandatory) 

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: 

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

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 

• Copy of Certificate of Incorporation (COI) of LLP. 
• Copy of incorporation document submitted in E-Form FiLLiP to ROC. 

The following are some of the implication on the conversion of a company into an LLP:

• The private company will be deemed to be dissolved.
• The name of the private limited company will be removed from the register of the Registrar of Companies.
• On conversion, all properties, assets, interests, rights, privileges, liabilities and obligations of the private limited company are transferred to the LLP. The conversion will not affect existing liabilities, obligations, agreements, contracts and continued employment.
• The conversion has no bearing on the existing liabilities, obligations, agreements, contracts and continued employment.
• Permits or licenses issued under any written law to the Private Limited Company, and which is active before the date of conversion will not be transferred automatically to the Limited Liability Partnership. The terms of the license will the deciding factor here. Hence, in most cases, fresh GST registration or FSSAI registration would have to be obtained by the promoters.

Documents required

• Photograph, PAN Card & ID proof of all the Partners
• Electricity Bill or any other utility bill for the address proof of the Registered Office
• Consent of each of the shareholders of the company for conversion of the firm into LLP in the given format
• Statement of assets and liabilities from the company
• List of all the creditors along with their consent

Special requirement

• Clearance/no-objection certificate from tax authorities.
• Incorporation document in E Form FiLLiP
• Form 3- Form of application and declaration of incorporation of an LLP
• Approval from any other country
• Optional attachments, if any
• Authorization to make a declaration

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:

• All assets and liabilities of the Company enhance the assets and liabilities of the LLP.
• All the shareholders of the Company fit the partners of the LLP
• The capital proportion and the ratio of profit-sharing of partners are in a similar proportion as that of the shareholding in the Company.
• The shareholders do not get any benefit, directly or indirectly in the LLP, except by way of capital addition and profit-sharing ratio.
• The total sales, gross and turnover in any of the 3 preceding years from the conversion date of the do not exceed Rs. 60 Lakhs.
• The total value of assets as resembling in the books of account of the Company in any of the past 3 years does not exceed Rs. 5 crores.

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.