September 18, 2022

Conversion of Private Limited Company to Limited Liability Partnership

Private Limited Company

Private Limited Company (PLC) is one of the most preferred forms of business structure not just in India but globally as well. The advantages of a PLC include a separate legal existence, owners’ limited liability and easy fundraising. 

However, Limited Liability Partnership (LLP) is becoming increasingly popular with entrepreneurs as a business form due to the numerous benefits it offers. An LLP is a simpler form of business that combines the best aspects of both a corporation and a partnership firm.

This blog will guide you through the whole process of converting a Private Limited Company to a Limited Liability Partnership. 

Governed under the LLP Act, 2008, LLP is a suitable form of business structure for small to mid-size enterprises. LLP registration in India requires fewer compliance requirements as compared to other corporate structures. Moreover, it gives operational flexibilities to partners with limited liabilities.

Before you go further, you should make sure your company meets the basic requirements for converting Private Limited to LLP

Eligibility Criteria for converting PLC to LLP

  • The company should not have any security interest on its assets at the time of application
  • The filing of E-Forms should not be pending
  • There should be no open charges against the company
  • Consent of all shareholders and creditors of the company is required
  • The company must have filed at least one balance sheet and annual return
  • All shareholders must be ready to become partners in LLP
  • The company must have share capital
  • The company should not be a Section 25 company or a Section 8 company

Now let’s take a look at the LLP formation procedure in detail:

Process of converting PLC into LLP 

1.       Obtain DIN and DSC

All the designated partners must acquire Director Identification Number and Digital Signature Certificate to carry out the conversion formalities. 

2.       Meeting of the Board of Directors

The company must conduct a board of directors meeting to pass a resolution sanctioning the conversion of the PLC into an LLP. The resolution must be passed with the director’s majority. Directors then further communicate to the MCA and file the necessary forms. 

3.       Reserve a Name for the LLP registration in India

The company must apply for the name reservation of the LLP to get a certificate of approval from the Registrar of Companies. 

4.       Filing of Form FiLLiP

After the name approval, Form for Incorporation of Limited Liability Partnership (FiLLiP) needs to be filed along with the following documents:

  • The registered address of the LLP
  • Subscription sheets
  • Consent of the designated partners
  • Identity and address proofs of the designated partners
  • Details of the companies in which designated partners work as partners

5.       Application for Conversion into LLP

E-Form-18 needs to be filed to convert a PLC into an LLP. This form must be filed along with the incorporation form.

Below is the list of information included in the E-Form-18:

  • Shareholder’s consent to convert a company into an LLP
  • Updated income-tax return form
  • Latest balance sheet and annual returns filed with the MCA
  • Validation in case of conviction, court judgement, ruling order in favour of or against the company
  • Security interest on the company’s assets
  • Whether the ROC has rejected any application earlier for the conversion of the PLC into LLP or not
  • Consent of secured creditors
  • Statement of accounts verified by an independent auditor
  • Company’s shareholder statement

6.       Certificate of Incorporation

Once the above formalities are completed successfully, the ROC verifies them and issues a Certificate of Incorporation. And the company can be converted into an LLP after that.

7.       Drafting of LLP Agreement

After online LLP registration, the designated partners draw an LLP agreement along with the following information:

  • Name of the LLP
  • Name of all the designated partners/partners
  • Proposed business
  • The profit-sharing ratio of designated partners
  • Form of contribution
  • Rules of governing an LLP
  • Rights, duties and responsibilities of designated partners

8.       Filing of E-Form-3 and E-Form-14

  • E-Form-3 needs to be filed within 30 days of LLP incorporation. This form contains the information regarding the LLP Agreement. Also, LLP Agreement needs to be attached to this form.
  • E-Form-14 needs to be filed within 15 days of LLP registration in India. This form informs the ROC for the conversion of the company into an LLP. A copy of the incorporation certificate and FiLLiP must be attached while filing this form. 

Taxation on the conversion of company into LLP

After LLP registration in India, as per the IT Act, 2000, the effects of taxation will not attract capital gain after the conversion. If the following conditions are fulfilled, it will not attract capital gain:

  • All the company’s assets and liabilities become the assets and liabilities of the LLP
  • The company’s shareholders become LLP’s partners
  • The capital proportion and profit-sharing ratio are in the same proportion as the company’s shareholders
  • Shareholders do not receive any explicit benefit directly or indirectly, except through the capital contribution and profit-sharing ratio
  • The total sales, gross revenue and turnover should not surpass ₹60 Lakhs in three preceding years before the conversion date
  • The total value of assets appearing in the books of account in any three preceding years should not exceed 5 crores.