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Conversion of LLP into Private Limited Company as per Companies Act 2013

It can be difficult to operate LLP type of business as compared to other type of business that offers better opportunities for the growth and development of the business. So benefits offered by the other organizational entities can attract the shareholders. That would initiate the conversion of LLP into Private Limited Company.

Earlier Situation of converting a LLP Into Company

Earlier it was not possible to perform conversion of the LLP into a Private Limited company. But after the introduction of Section 366 of the Companies Act, 2013, it is possible to convert a LLP into a Private Limited Company.

Mostly, as section 366 of the Companies Act, 2013, cooperative society, any partnership firm or LLP, or any other business unit that is registered under any other act and has 2 or more members can get themselves incorporated as an unlimited company or as a company restricted by shares or a company restricted by guarantee. The entire procedure of such conversion is offered under the Companies (Authorized to Register) Rules, 2014.

Prior Necessities to convert LLP into Private Limited Company

For an LLP to be converted into a Private Limited Company there are a number of needs to be satisfied.  The LLP must have at least 2 partners, a NOC (No Objection Certificate) from the Registrar of Companies, an advertisement in favour of conversion requires to be published in 1 national and local newspaper. These are a few basic needs that are to be fulfilled by the LLP.

There should be minimum 7 members in the supposed firm or LLP. Though, it is important to remember that a modification took place in this section vide Companies (Amendment) Act, 2017 that a firm or LLP with even 2 members via Companies (Authorized to Register) Amendment Rules, 2018 can be converted into a private limited company but the same has been into be forced on 15.08.2018.

The partnership firm/LLP should be a registered unit. But in the case the same is not registered, an application for registration of partnership firm must be filed with the Sub Divisional Magistrate having authority over the district of the registered address of the partnership firm.

Conversion Process of LLP into a Private Limited Company

Following procedure must be followed for conversion of LLP into a Private Limited Company :

Name Approval - To get the name approved from the Registrar of Companies, one requires to submitting RUN (Reserve Unique Name) form that is in e-format. Different fields need to be filled before submitting the RUN form.  The name, approved by the Registrar of Companies can be used only for 20 days in the case of a new company and 60 days in the case to change of name of an existing company.

Obtaining DSC and DIN – Application must be filed for the Digital Signature Certificate (DSC) and Director Identification Number (DIN). It is for all the members of the LLP who will be the directors of the Private Limited Company after the conversion if they don't have it.

A self-attested identity proof, address proof and one recent passport size colour photo of the applicant must be given with the application. Through filing incorporation form, DIN can be directly obtained.

Filing of Form URC – 1 - Once, the name is approved by the Registrar of Companies URC-1 must be filed by the applicant. List of documents that are to be submitted with the form URC-1 are as follows :

Names, address, DIN, passport number with an expiry date of all the first directors of the Private Limited Company must be offered.

Details like name, address, shares retained by the members are to be offered with the list of members.

According to Section 164 of the Companies Act, 2013, an affidavit should be offered by all the intended first directors of the Private Limited Company mentioning that they are not disqualified from being a director. Also, all the basic documents must be filed with the Registrar of Companies for the registration of the company should contain such information that is complete and accurate to the best of their faith and knowledge.

A copy of LLP agreement with a list comprises the names and addresses of partners of LLP and a certificate of registration properly verified by 2 nominated partners of LLP must be offered.

A statement to be offered with the details of the small share capital of the firm and the number of shares taken, the number of shares into which it is separated, the amount paid for each share and the name of the firm with the addition of the word 'private limited'.

A NOC (No Objection Certificate) from all the creditors is to be offered.

A properly certified statement of accounts of the company by the auditor which must not be of 6 days prior the date of application and photocopy of the newspaper advertisement should be offered.

Memorandum of Association and Articles of Association

As soon as the name of the company and Form URC -1 are approved by the Registrar of Companies, Memorandum of Association (MOA) and Articles of Association (AOA) should be made and then submitted to the Registrar of Companies.

Advantages of Conversion of LLP into Private Limited Company

Tax benefits are one of the main reasons to convert LLP into Private Limited Company. Though in order to obtain tax benefits, there are so many needs that are to be fulfilled, such as sustaining the equal shareholding of the partners similar to LLP throughout the conversion procedure, the past partners of LLP cannot cover a total shareholding that is below 50 percent for consequent 5 years in the newly incorporated private limited company. LLP Conversion procedure into Private Limited Company includes the following advantages :

There is not any capital gain tax

Persistence of Brand Value

Carry forward of unabsorbed losses and depreciation

Other Method to perform Conversion of LLP into Private Limited Company

Excluding aforementioned procedure of conversion of LLP into Private Limited Company, there is 1 more available method to accomplish such conversion.

A different private limited company should be incorporated and after that through a written agreement, complete business of the LLP is to be transferred to the private limited company.

However, in this case, the aforementioned restrictions are not at all necessary for the need of :

At least 2 partners

An advertisement in a newspaper

In this method, the only concern involves a capital gain tax is imposed.  During such transfer, stamp duty is also applicable.

Conclusion

The major reason for an LLP to convert itself into a Private Limited company includes the capital gain. Also, the LLP converted into Private Limited Company will have lots of choices to increase capital for the growth of its business.

Frequently Asked Questions

Ques: How to perform filing for the Conversion form in the case of more than 7 partners in the LLP?

In the case of more than 7 partners in the LLP while converting it into private limited company then company must file scan copy of Memorandum of Association and Articles of Association.

In aforementioned case, company needs to file :

1. URC-1 and

2. INC-32.

No need of INC-33 and INC 34 in the aforementioned conditions.

Ques: Whether the most up-to-date deed should be attached along with form URC-1 at the time of conversion?

According to rules, LLP must file "copies of the principal and all subsequent deeds include the most recent deed" with the Registrar of Companies in e-form URC-1 at the time of conversion.

Ques: Whether e-Memorandum of Association and Article of Association can be filed in the case of Memorandum of Association and Article of Association are signed by an individual at a place outside of India?

In the case of incorporation of a company where any of the subscribers of the Memorandum of Association and Article of Association is signing at a place outside India, Memorandum of Association and Article of Association shall be filled along with INC 32 in the prescribed format as mentioned in Table A to J in Schedule I without filing form INC 33 and INC 34.

Ques: How many DINs can I apply through SPICE Form?

You can apply for a maximum of 3 DIN through SPICE form.

If applicant wants to register company with more than 3 Directors and more than 3 individuals who does not possess DIN. In such condition, applicant needs to incorporate Company with 3 Directors and must appoint new directors afterwards incorporation.

Ques: Is there any need to file any separate form for PAN and TAN?

No, there is no need to file any separate form. Details regarding Area Code and other details must be stated in the form INC-32 itself and PAN and TAN shall be created with Certificate of Incorporation.

Ques: Concerns while converting LLP into Private Limited Company

There are many ways to convert a firm into a private limited company, such as slump sale, admitting the company as a partner, itemized sale, business being taken over by the company, dissolution thereof and on dissolution and others.

It is recommended to perform the conversion in a way appropriate to a specific circumstance and in a way which is most helpful.

1. Get engagement letter from subscriber - According to certification in e-form SPICE i.e. INC-32, a professional announces that he is involved for the purpose of certification. So it is suggested to get an engagement letter.

2. Verification of original documents related to registered office – As said by certification in e-form Spice i.e. INC-32, a professional announces that he has examined all the details (including attachments) from original records.

3. Make sure all attachments are understandable to read – As said by certification in e-form Spice i.e. INC-32, an expert announces that all attachments are complete and legal.

4. Certify registered office of the company is operating for the business purposes of the company - According to certification in e-form Spice i.e. INC-32, an expert declares that he has visited the registered office in person.

Take a declaration to the effect that all the original documents must be given away after incorporation. As said in section 7(4), copies of all documents/information as originally filed should be maintained at the registered office of the company, therefore an expert should take a statement while giving away the incorporation documents.

5. Ministry of Corporate Affairs Circular 10/2014 – As par this circular Registrar of Companies/RD in the case of omission of material fact or submission of incomplete/false/misleading information can after giving chance to give details refer the matter toe-governance division of Ministry of Corporate Affairs, that in turn may start actions under section 447 and/or ask the relevant professional institute to take necessary disciplinary action.



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