To have better credibility in the market, fast growth, and availability of equity financing, some LLP companies in India have converted themselves and set up Private Limited Companies. Therefore, let us know about theconversion of LLP to Private Limited Company.
About Limited Liability Partnerships
A corporate business form introduced in 2008 combining traditional benefits of a partnership and a company. The LLP gives partners an existence beyond death, limited liability, low cost of compliance, and status of a distinct legal organization.
About Private Limited Company
According to the Companies Act of 2013, Private limited companies are corporations. Private limited company is the most popular form of company for entrepreneurs and growing business because it will appeal to prospective investors to subscribe for shares providing limited liability protections to its members. Mostly private limited companies can also attract equity funding from venture capitalists and angel investors, which is intangibly in the domain of LLPs.
Legal Provision for the Conversion of LLP to Private Limited Company
Conversion of LLP into Private Limited is developed under Section 366 of the Companies Act, 2013, optimistic towards the Companies (Authorized to Register) Rules, 2014. For the conversion to be valid, the LLP must satisfy certain conditions, observe all the legal requirements and obligations and follow a well-laid-out process of conversion.
Conversion of LLP to Private Limited Company Criteria
Minimum Number of Partners:
- To start the conversion, the LLP needs a minimum of two partners. Two shareholders should be filed subsequent to conversion into a Private Limited Company.
- According to the Companies Act of 2013, Private Limited Companies or other directors need at least two managers, one must be residing in India.
- For the conversion process to proceed, an entire agreement is required from all the partners beforehand.
No Pending Liabilities:
- There must be no outstanding unsecured debts owed by the LLP.
- Prior to conversion, creditors' written consent is required if there are debts.
- To prevent issues during the procedure, the LLP's financial records must adhere to the statutory audit standards.
Acceptance of the Name:
- Preferred name of the company is to be reserved and approved by the Registrar of Companies.
- According to Companies Act 2013, two directors must be appointed in total, one of them should be an Indian resident.
Observing Financial Reporting:
The LLP's most recent audited financial statements:
- must be prepared in accordance with legal standards, must be presented.
- six days after the date of submission to the RoC, at the maximum.
Documents Required for Conversion of LLP to Private Limited Company
For Registration as a Company Limited by Shares:
- Information about each partner's shares, highlighting the differences between:
- All partners' names, addresses, and occupations.
- shares given out in exchange of consideration.
- the source of consideration and the shares allocated for non-cash compensation.
- Provide numbers, if any.
- The status of the partners must be shown in this list no later than six days prior to the application date. Names, addresses, DINs, passport numbers (if any), and expiration dates are listed for the first directors.
- Residential addresses as well as any current stakes in other businesses or organizations.
- Permission to serve as directors.
- A No Objection Certificate (NOC) from all secured creditors and charge holders. The LLPs most recent income tax return is also required.
For Registration as a Company Limited by Guarantee:
- Proof of membership and the names, residences, and jobs of each partner must be submitted within six days of the application date.
- Names, addresses, DINs, passport numbers (if any), expiration dates, and residence addresses are listed for the first directors. their approval to serve as directors.
- Resolution for Guarantee Amount: A decision stating the guarantee's total value.
- Certificate of No Objection (NOC): permission of charge holders and secured creditors.
- A copy of the LLP's most recent income tax return, as of now.
At least two proposed directors must sign a declaration attesting to the list of members, directors, and any other information pertaining to the company. This guarantees genuineness and adherence to legal specifications.
Conversion of LLP to Private Limited Company Process
Step 1: Get Name Approval
- Submit the Reserve Unique Name (RUN) form to the Registrar of Companies (ROC) to get their approval for your company's name. This needs to be in digital or electronic form.
Step 2: Forwarding DIN and DSC
- Apply for a Director Identification Number (DIN) and a Digital Signature Certificate (DSC) for the LLP members who will serve as directors of the Private Limited Company following the conversion as soon as you have received name approval.
Step 3: Filing of Form URC-1
- Along with the member's list, other details include the members' names, addresses, and shares.
- Give each director of the private limited company their name, address, DIN number, passport number, and expiration date.
- The private limited company's original directors must provide an affidavit. It should contain a statement that the LLP member is not disqualified from serving as a director.
- Documents for registration are to be submitted with the Registrar of Companies.
- A certified copy of the registration with at least two partners of LLP attesting to it, a list of partners with their addresses, and a copy of the Limited Liability Partnership Agreement should be submitted.
- A statement regarding nominal share capital of the company, number of shares taken and amount paid on each share, name of the company with "private limited," and number of shares divided.
- Give a certificate of no objection from each and every creditor.
- Additionally, you must present the company's verified accounting statement.
Step 4: Drafting MOA and AOA
- Draft and file with the Registrar of Companies the Memorandum of Association and Articles of Association. If the company name is approved, then the Register of Companies shall approve URC-1.
Step 5: Submission of No-Objection Certificates
- No-Objection Certificate from all LLP secured creditors should be obtained before registration of conversion.
Step 6: Incorporation Forms
- For the registration of the Private Limited company, Forms INC-32, 33, and 34 shall be submitted to the RoC mentioning the particulars of the directors, registered office, and management structure of the company.
Step 7:Certificate of Incorporation
- After being satisfied with all of the documents and papers filed, the RoC issues the certificate of incorporation. The LLP's transformation into a Private Limited Company is officially acknowledged by this certificate.
Conversion of LLP to Private Limited Company Benefits
- Facilitated Growth: Encourages the expansion and growth of businesses by implementing a structure that is more appropriate for scaling operations.
- Easy Capital Raising: By offering equity or debentures, private limited companies can readily draw in investors who can then join as business partners.
- Flexible Share issue: Permits Employee Stock Option Plans (ESOPs) as bonuses and permits the issue of equity shares at any moment to raise capital.
- Tax Benefits: Unabsorbed losses and depreciation can be carried forward, and conversion is free from capital gains tax.
- Convertibility to a Public Company: Provides the possibility of becoming a public company to raise funds and expand the business.
- Continuity of Goodwill: Retains the well-known brand name and goodwill of the LLP, thus ensuring continuity and recognition in the marketplace.
Conclusion
Converting an LLP into a Private Limited company is a strategic move initiated by businesses when they are in the process of dynamic expansion and promote to attract investments and make a name in the marketplace. The process may include getting approvals, completing paperwork, or going through compliance procedures by improving the chances of better growth opportunities and market credibility.
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