Easy Guide to Convert LLP into Private Limited Company

Limited Liability Partnership is a term in the companies act which offers the partners to be limited in their personal liability towards any company in case of any liquidation or dissolution of the firm.

Here we will make understand all the relevant and important points under the limited liability partnership including;

Latest Update

22nd February 2022

• MCA department has circulated notification no.12 related to LLP amendment act 2021. The new amendments in sections 1 to 29 shall come into effect from FY 2022-23. View More

14th February 2022

• “The MCA department has issued the notification under section 67 of the LLP Act 2008.” Get More

01st February 2022

• The MCA department will be launched a new way of e-filing for LLP on MCA 21 portal on 06th Mar 2022 at 12:00 AM. The new e-filing system will be web-based. View More

Membership of LLP

Who is Eligible for Becoming a Partner in LLP?

• A person until disqualified
• A company considered in the Companies Act 1956 or Companies Act 2013
• An LLP considered under the LLP Act 2008
• An LLP is considered a foreign
• A company considered a foreign

Who is not Eligible for Becoming a Partner in LLP?

• An individual with a condition that he might be in no sound mind and has been declared by competent authorities and jurisdiction.
• A minor/ HUF/ Partnership Firm  
• An AOP (Association of Persons) or BOI (Body of Individuals)
• An Artificial Judicial Person/ Corporate Sole
• A Co-operative Society registered under any law in the mentioned time period
• A body corporate which the Central Government might mention on the behalf by notification in the Official Gazette.

Who Can Become a Member of LLP?

• Any person or a body corporate can become a member of an LLP.

Who is not Capable of Becoming a Member of LLP?

The person who cannot become a member of LLP is

• If he is found to be irresponsible by the Court of competent jurisdiction and if it is proved;
• If he comes under ‘undischarged insolvent; or
• If his application shows to be arbitrated as insolvent but the application is still on hold.

Who is Appointed as a Designated Partner in LLP?

• An LLP stands for the Limited Liability Partnership and is ruled according to the rules of the LLP (Limited Liability Partnership) Act, 2008. As the years are passing, the LLP is becoming famous as compared to the ‘Private’ or a ‘Limited Company’ form of business and this is only possible because the nature of the LLP is easier and the compliances are lesser.
• Each and every LLP must have at least 2 partners and both of them must be designated partners who must participate in daily basis activities and works in the support of the partners. After the appointment, the partner or a designated partner can be removed, changed, or appointed.

Read Also: Guide to Form LLP 8 Filing with Due Date & Penalty

How can a Designated Partner be Added?

Given below is the procedure by which a designated partner can be added-

1. Apply for the DSC:

The partner must apply for a Digital Signature Certificate (DSC) and for which the given below documents are needed –

• PAN Card of the applicant
• Aadhaar Card of the applicant
• Photo of the applicant
• Email Id of the applicant
• Phone number

2. Apply for DIN:

• After applying for the DSC, the director must apply for the DIN (Director Identification Number) in the DIR-3 Form along with the applicant’s address proof as well as the identity proof.

3. After giving the DIN to the designated partner, the partners of the LLP should call a meeting in which they must pass a resolution so that the designated partner can be added in the partnership contract.

4. An extra partnership contract will be drafted and in that the new name of the partner will be added.

5. After this, the agreement of the new partner will be taken that too in the written.

6. After all the above-mentioned documents are prepared and collected then a Form-4 of LLP must be mandatorily filed within the given 30 days after the appointment.

7. After filing the Form-4, the Form-3 must be filed along with the extra as well as the original partnership contract within the given 30 days after the appointment.

8. After filing the above-mentioned forms, the designated partner’s name will be added which can be seen on the MCA (Ministry of Corporate Affairs) site.

9. If the Form-3 and Form-4 is not filed within the mentioned 30 days then an extra fee will be charged.

How Can the Limited Liability Partnership Be Converted into the Company?

Introduction

In India, there are many businesses that started as LLP (Limited Liability Partnership) but now want to convert it to a private limited company to taste more growth in the business or might be forgetting the benefit of equity capital. According to the provisions of ‘Section 366 of the Companies Act, 2013’ and ‘Company (Authorised to Register) Rules, 2014’, the LLP businesses have the right to convert into the company.

But there are certain requirements that must be fulfilled for an LLP to convert into a Private Limited Company. For example, there must be a minimum of 7 partners in LLP, approval from all the partners is mandatory, advertisement in the local and national newspaper must be done, A NOC (No Objection Certificate) is needed from the ROC in which the registration of LLP is done and all the given below incorporation process must be done-

• Approval of name
• Securing DSC and DIN
• Filing form no. URC – 1
• Memorandum of Association & Articles of Association

Approval of Name

The approval of the name will be acquired from the Registrar of Companies (ROC) after submitting the application in an e-format. For applying for this, many items must be selected which are stated in the ‘RUN FORM’. And if the authority accepts the name then it is valid until 60 days.

Securing DSC and DIN

If the 7 members who are going to be the directors of the company after the conversion does not have the DSC (Digital Signature Certificate) and DIN (Director Identification Number) must have this and if not then get it as soon as possible. To get the DIN, one must file an application that is available on the MCA Portal. The DIN application will be processed further and the central government will approve it through the office of the regional director, the MCA (ministry of corporate affairs). Along with the form, one must also include address proof and identity proof along with the 1 recent colour passport size photo. All the above-mentioned documents must be attested by a practising chartered accountant or a practising cost assistant or a practising company secretary.   

Filing Form No. URC-1

After completing the above-mentioned steps, the applicant must now file form no. URC-1 along with the documents.

The conversion from LLP to private limited companies gives many tax benefits but to utilize them one has to meet certain requirements. For example, the same shareholding which was done in the LLP must be maintained by the partners during the conversion, for at least 5 years from the changed earlier partners of the LLP and now shareholders in the recently created company cannot assume 50 per cent or lesser shareholding. For LLP, there is another option in which a separate private limited company can be established and later the entire business can be transferred into the private company and this can be done with the written agreement. For this other option, the above conditions mentioned which include the at least 7 partners required, advertisement through the newspaper and many more are not required to be done. But, the capital gain tax will be charged in this situation. And also there is the applicability of stamp duty implication in such transfer.    

Steps to be Followed for Conversion of LLP to Private Limited Company

First Step:

• Gather the partners for the meeting to get the approval of the majority for registering in the LLP u/s 366 of the Companies Act, 2013. To allow more than one partner to take all the mandatory steps and to perform all the papers, documents, contracts, and many more which are agreeable to register the LLP as the company.  

• The LLP must be applied so that its name can be seen in the RUN FORM. The advantage of it is that the business can be named the same as the LLP (subject to availability of name according to the Name Availability guidelines of Companies Act) but the one thing that must be added with the name of the LLP, is the ‘limited’ or the ‘private limited’ words.

Second Step:

After getting the approval of the Name, the applicant must file the form along with the documents which are needed with the ROC (Registrar of Companies) within 20 days of the date of approval of the name.

Given below is the list of documents that are mandatory for filing with the ROC for the LLP conversion to the Company-

E-form URC-1

The e-form URC-1 must be filed by the company along with the documents that are mentioned below-

• A list that shows the names, addresses, and occupations of the partners of the company along with shares details that they hold.
• A list which shows the names of the persons who are the company’s first directors.
• An affidavit must be taken from each and every person who is appointed as the first director of the company in which it must be written that he is ‘not disqualified to be a director’ as per the sub-section (1) of Section 164 and also that the documents that have been attested with the Registrar for registration of the company have the correct, complete and true information as per the knowledge and belief.
• A list that contains the names and addresses of the LLP (Limited Liability Partnership) partners.   
• A copy of the agreement of the LLP.
• The assets and liabilities statement of the LLP (Limited Liability Partnership) duly given by the practice chartered accountant which must be done not before the 30 days mentioned after the filing of form no. URC-1.
• A copy of the recent ITC (Income Tax Return) of the LLP (Limited Liability Partnership).
• An agreement that the appointed directors of the company must follow the requirements of the Indian Stamp Act, 1899 (2 of ‘1899).
• The agreement or NOC (No Objection Certificate) must be written from all the applicant’s secured creditors.
• The majority of the Partners must give an agreement written.
• A statement containing the given below particulars-
  • The company’s nominal share capital and in how many shares it is divided;
  • How many shares are taken and how much amount is paid on each of the shares;
  • Company’s name along with the ‘Limited’ or ‘Private LImited’ words added after the name as per the requirement of the directors.

E-form INC- 33 / INC-33 / INC-34

The company must mandatorily file the INC-32/ INC-33/ INC-34 forms with the linked forms such as URC-1 and also along with all the documents which are required in the normal Incorporation of the Company such as-

Cautions While Conversion of LLP into Private Limited Company for Professionals

There are many ways by which the firm can be converted into a company via itemized sale, slump sale, dissolution thereof and on dissolution, accepting the company as a partner, business taken by the company etc. as per the choices. The conversion from LLP to the company must be done is an appropriate way as per the situation and which gives the benefits.

• Obtain an Engagement letter from a subscriber: According to the certification under the SPICE Form i.e. INC-32 Form, a professional has to declare that he is engaged for the certification purpose so therefore is mandatory to have an engagement letter.
• Verification of original records pertaining to the registered office: According to the certification in SPICE Form i.e. INC-32 form, a professional declares that all the particulars along with attachments have been verified from the original records.
• Ensure all attachments are clear enough to read: According to the certification in SPICE Form i.e. INC-32 Form, a professional declares that the attachments submitted by him are complete and neat.
• Ensure the registered office of the company is functioning for the business purposes of the company: According to the certification in SPICE form i.e. INC-32 form, a professional has to declare that the registered office has been visited by him personally. He must also declare that all the original documents have been given after the incorporation. According to section 7(4), the professional must declare that all the copies of the documents/ information are verified from the originally filed documents which are maintained at the registered office of the company and must give it to the incorporation documents.

• MCA Circular 10/2014: As per this circular ROC/ RD, if the material fact is not included or the introduction of misleading/incomplete/false information post giving chances to explain the issue to the government division of MCA may further proceedings under section 447 or respective department may take action.