LLP to Pvt Ltd Company Conversion
Limited Liability Partnership to Pvt Ltd Company
Converting LLP to Pvt Ltd Company is the process of changing a business structure from a Limited Liability Partnership (LLP) to a Private Limited Company (Pvt Ltd). This conversion involves legal and procedural steps, which allow a business to operate under the framework of a Pvt Ltd company. It is a common move for businesses that want to alter their legal structure, and this process is governed by specific regulations and requirements.
Lets take a look about both the company types:
Limited Liability Partnership (LLP)
- Combines flexibility of partnerships with limited liability protection for partners.
- Partners manage the business directly with minimal formalities and fewer legal requirements.
- Commonly used by small to medium-sized businesses and professional services firms.
Private Limited Company (Pvt Ltd)
- A separate legal entity offering limited liability for shareholders and directors.
- Requires a formal structure with a board of directors, regular meetings, audits, and annual filings.
- Suitable for businesses looking to grow, raise funds, or have a structured corporate framework.
Company Structure of LLP and Pvt Ltd
Aspect | Limited Liability Partnership (LLP) | Private Limited Company (Pvt Ltd) |
Ownership | Owned by partners (minimum 2 partners, no maximum limit) | Owned by shareholders (minimum 2 shareholders, maximum 200) |
Legal Structure | Partnership with limited liability | Company with limited liability |
Liability of Owners | Limited to partner's contribution | Limited to shareholders' shareholding |
Directors | Managed by designated partners | Minimum 2 directors, maximum 15 |
Compliance Requirements | Fewer compliances, simple filing with Registrar of Companies (RoC) | More compliances, annual filing with Registrar of Companies (RoC) |
Annual Filings | LLP Agreement, Annual Return, Financial Statements | Annual Return, Financial Statements, Board Meeting Minutes |
Taxation | Pass-through taxation (income is taxed at the partner level) | Corporate tax rate applicable (taxed at company level) |
Regulatory Authority | Ministry of Corporate Affairs (MCA) | Ministry of Corporate Affairs (MCA) |
Audit Requirement | Audit required if turnover exceeds ₹40 lakhs or capital exceeds ₹25 lakhs | Audit required regardless of turnover or capital |
Transferability of Ownership | Not easily transferable without agreement among partners | Shares are transferable (subject to shareholder agreement) |
Minimum Capital Requirement | No minimum capital requirement | No minimum capital requirement |
Conversion | Can be converted into other type or vice versa | Can be converted into other type or vice versa |
Continuity | Continuity depends on the partnership agreement, can be dissolved easily | Continues even if the shareholder or director changes |
Key Details for Conversion
1. Parties Involved
- Partners of the LLP: The current partners of the LLP approve the conversion. After conversion, they often become the shareholders and/or directors of the new Pvt Ltd company.
- Shareholders of the New Pvt Ltd Company: The shareholders of the new Pvt Ltd company, usually the former partners, hold shares and contribute to key company decisions, such as voting on major issues.
2. Directors
They are responsible for managing the company’s operations, with an option for the LLP partners to continue in this role, or new directors to be appointed during the conversion process.
3. Breach
If any of these provisions or procedures are breached (such as failure to file necessary forms, delay in dissolution of the LLP, or failure to update the registered office), there could be consequences under the Companies Act, 2013, such as penalties, rejections, or fines.
4. Approval and Consent
All partners of the LLP must approve the conversion through a formal resolution in a meeting, authorizing the conversion and appointing representatives to carry out the necessary acts.
5. Memorandum and Articles of Association
Drafting and filing a new MoA and AoA is mandatory. These documents will govern the new Private Limited Company after conversion
6. Publication and Notice
A public notice of the proposed conversion must be published in at least two newspapers (one English and one vernacular) circulating in the district of the LLP’s registered office, inviting objections within 21 days.
7. Minimum Members and Directors
The LLP must have a minimum of two partners to convert. After conversion, there must be at least two shareholders and two directors (one resident in India) as per the Companies Act, 2013.
Procedure for Converting LLP to Pvt Ltd Company
- Obtain Partner Consent: Ensure all LLP partners give consent for the conversion. A special resolution must be passed to approve the conversion.
- Obtain Name Approval: Submit the Reserve Unique Name (RUN) form to the Registrar of Companies (RoC) for name approval. The name is valid for 60 days.
- Obtain DSC and DIN: Apply for Digital Signature Certificates (DSC) for directors and obtain Director Identification Numbers (DIN) through Form DIR-3 if they don't already have them.
- Publish Public Notice: Publish the intent to convert in two newspapers (one local vernacular and one English) for 21 days to receive any objections.
- File Form URC-1: Submit Form URC-1 to RoC with necessary documents to initiate the conversion process.
- Draft and File MoA and AoA: Prepare and file the Memorandum of Association (MoA) and Articles of Association (AoA) for RoC approval.
- Address Objections: Resolve any objections raised during the 30-day notice period before proceeding.
- Incorporation Forms: File Forms INC-32 (SPICe), INC-33 (e-MoA), and INC-34 (e-AoA) for the new Private Limited Company, including company structure, director details, and registered office.
- Pay Fees: Pay the prescribed fee for the form.
- Issuance of Certificate of Incorporation: Once all requirements are met, RoC issues the Certificate of Incorporation (Form INC-11), and the LLP is dissolved.
- LLP Dissolution: Upon registration as a Private Limited Company, the LLP is automatically dissolved under the LLP Act.
Cost to Convert Company Type
Converting your LLP to a Private Limited Company involves a few costs, which can vary depending on several factors like location, professional fee etc. Here's a simplified breakdown of what you might need to pay for:
- Government Fees: These are the registration and statutory fees required by the Registrar of Companies (RoC), .
- Professional Assistance: If you hire lawyers or financial consultants to guide you through the process, their fees can range widely.
- Document Preparation: You will need to create certain legal documents, like the memorandum and articles of association. If you hire professionals to do this, there will be additional costs.
- Tax Considerations: There may be tax implications when you change your business structure, and you might need to consult a tax advisor to understand the costs involved.
- Other Costs: This could include extra expenses for new licenses, permits, or registrations needed for the Pvt Ltd company.
Requirements for LLP to Pvt Ltd Conversion
Requirements
Conditions
Documents Required to Convert Limited Liability Firm to Pvt Ltd
The conversion of a Limited Liability Partnership (LLP) into a Private Limited Company is regulated by the Companies (Authorized to Registered) Rules, 2014. Below is a list of required documents and compliances for the conversion:
- List of Members and Shares: A list showing the names, addresses, and occupations of all the partners, with details of shares held by them, including distinctions between cash and non-cash considerations.
- First Directors: A list showing the names and details of the proposed first directors, including DIN, passport number (if any), residential addresses, and their consent to act as directors.
- LLP Agreement and Registration Documents: Deeds of partnership, bye-laws, or other documents regulating the LLP, along with the registration certificate (if registered).
- Secured Creditors: No Objection Certificate (NOC) from secured creditors and charge holders (if applicable).
- Consent from Majority of Members: Written consent from the majority of LLP members (present in person or by proxy) agreeing to the conversion.
- Stamp Act Compliance: An undertaking from the proposed directors to comply with the Indian Stamp Act, 1899.
- Income Tax Return: A copy of the latest income tax return of the LLP.
Conditions for the Conversion of LLP to Pvt Ltd Company
As per Companies (Authorized to Register) Rules, 2014, under the Companies Act, 2013 there are several essential criteria and procedural requirements to convert the company. Below are the key conditions that need to be fulfilled for a smooth conversion process.
- Minimum Partners: At least two partners in the LLP; after conversion, two shareholders and two directors (one must be a resident of India).
- Partner Approval: All partners must unanimously agree to the conversion.
- No Debts: No unresolved unsecured debts; consent from creditors required if debts exist.
- Audited Financials: Submit the latest audited financial statements.
- Name Approval: Get the proposed company name approved by the RoC.
- Newspaper Publication: Publish conversion details in two newspapers (English and local language).
- No Objection Certificates: If applicable, a No Objection Certificate from creditors must be provided.
Advantages & Disadvantages of Converting LLP to Pvt Ltd Company
Pros
Cons
Benefits of Converting LLP to Private Limited Company
Converting your LLP into a Private Limited Company (Pvt Ltd) comes with significant advantages. Here’s a breakdown of the key benefits of making this transition:
- Improved Access to Capital: Unlike LLPs, a Pvt Ltd company can raise capital by issuing equity shares. This makes it easier to attract angel investors, venture capitalists, and even foreign funding, helping your business scale faster.
- Enhanced Credibility & Market Perception: A Pvt Ltd company is considered more credible and structured, especially by banks, large corporations, and government bodies. This reputation can unlock more business contracts, partnerships, and funding opportunities.
- Perpetual Succession: In a Pvt Ltd company, the business continues even if shareholders or directors change or pass away. This offers greater stability and continuity compared to an LLP, where changes in partners can affect the entity.
- Clear Ownership & Share Transferability: Pvt Ltd companies issue shares, making it easier to transfer or sell ownership. This flexibility is limited in LLPs, where transferring partnership rights involves more legal complexity.
- Startup Benefits & Tax Incentives: Pvt Ltd companies are eligible for DPIIT startup recognition, tax exemptions under Section 80-IAC, and other startup schemes which LLPs don’t qualify for.
- Employee Stock Options (ESOPs): Pvt Ltd companies can offer ESOPs to attract and retain top talent—this is not possible in an LLP structure.
- Structured Governance: Though more formal, the Pvt Ltd structure supports well-defined roles, regular board meetings, and better accountability, ideal for growing businesses looking for professional management.
Challenges of Converting LLP to Private Limited Company
While converting to a Pvt Ltd company offers multiple advantages, it also introduces some challenges when compared to the simpler and more flexible LLP structure. Here are the key downsides to keep in mind:
- Increased Compliance Burden: Pvt Ltd companies are required to comply with more legal formalities, such as holding board and general meetings, filing annual returns, maintaining statutory registers, etc., which are minimal in an LLP.
- Mandatory Audits: Regardless of turnover, Pvt Ltd companies must undergo a statutory audit every year. LLPs are exempt from mandatory audits if turnover is below ₹25 lakhs or revenue is below ₹40 lakhs.
- Higher Operational Costs: Running a Pvt Ltd involves higher costs—legal fees, auditor’s charges, ROC filings, and regulatory maintenance, making it more expensive than operating an LLP.
- Loss of Internal Flexibility: LLPs offer greater freedom in structuring roles and profit-sharing. Pvt Ltd companies must follow strict rules under the Companies Act, which can limit quick decision-making.
- Sharing Control: Unlike LLPs where partners can manage directly, Pvt Ltd requires a minimum of two directors and shareholders, which means you'll share control and governance.
- Public Disclosure: Pvt Ltd companies must file their financials and other details publicly with the MCA, which reduces privacy. LLPs offer relatively greater confidentiality.
- Time-Consuming Conversion Process: Converting involves submitting multiple documents (like partnership deeds, NOCs, tax returns, etc.) and getting approvals. It’s not an instant switch.
Do and Dont’s for Conversion of LLP to Pvt Ltd
Do's
Don'ts
- Ensure eligibility: Confirm that your LLP meets the requirements for conversion to a Pvt Ltd company.
- Pass a resolution: Get approval from at least 3/4th of the partners through a special resolution.
- Prepare documents: Submit necessary documents like assets & liabilities statement and LLP agreement.
- Obtain DIN & DSC: Ensure directors get their Director Identification Number and Digital Signature Certificates.
- Comply with the Companies Act: Ensure the new Pvt Ltd company adheres to Companies Act provisions.
- File with MCA: Submit the conversion application (Form 18) to the Registrar of Companies.
- Settle debts: Ensure all liabilities of the LLP are cleared before conversion.
- Inform stakeholders: Notify creditors, suppliers, and stakeholders about the conversion.
- Leave liabilities unresolved: Don’t convert if there are pending debts, as they transfer to the new company.
- Miss statutory timelines: Avoid delays in filing the application with the Registrar of Companies.
- Forget document updates: Ensure all business documents reflect the new Pvt Ltd company after conversion.
- Ignore tax implications: Consult a tax advisor to address any GST or tax concerns.
- Retain same name without approval: Check if the LLP's name is available for the Pvt Ltd company.
- Forget director/shareholder updates: Ensure correct details for directors and shareholders are filed.
- Overlook employee matters: Handle employee transition and legal requirements properly.
- Delay filing with ROC: Don’t delay any follow-up filings with the Registrar to stay compliant.
Know the Law
In India, the conversion of a Limited Liability Partnership (LLP) to a Private Limited Company is governed by the Companies Act, 2013 (Section 366) and the Companies (Authorized to Registered) Rules, 2014. The conversion must be approved by the partners of the LLP and involves the filing of specific forms with the Registrar of Companies (RoC).
Consequences of Breach
Governing Laws
- Legal Penalties: Failure to comply with regulatory requirements can result in fines or legal action.
- Rejection of Conversion: The Registrar of Companies (RoC) may reject the conversion application if documents or steps are incomplete or incorrect.
- Liability Issues: Directors or partners could face personal liability for failing to fulfill compliance requirements.
- Delayed Conversion: Non-compliance can delay the process, causing operational disruptions.
Under the Arbitration and Conciliation Act, 1996, disputes can be resolved through arbitration, offering faster, confidential, and fair resolution. Section 7 mandates arbitration if included in the conversion of the company, while Section 8 allows courts to refer disputes to arbitration
- Faster Resolutions: Avoids lengthy legal battles.
- Confidential Proceedings: Keeps sensitive business information private.
- Fair Dispute Resolution: A neutral arbitrator decides the case.
How DigiLawyer Can Help in Converting Your Business from LLP to Pvt Ltd?
Converting your LLP to a Private Limited Company can be a complex process, but DigiLawyer makes it simple and efficient. With our AI-powered platform and expert support, we guide you through every step, ensuring that all legal requirements are met without any hassle. Here’s how DigiLawyer can assist:
Consultation: Provide expert advice on the conversion process.
End-to-End Documentation: From drafting shareholder resolutions to preparing affidavits, declarations, and MoA/AoA, we take care of all the legal paperwork required for conversion.
Personalized Legal Consultation: You can schedule a call with a lawyer at any stage. We’ll explain the process, answer your queries, and help you make informed decisions at every step.
Compliance Checks: We ensure your business meets all legal requirements under the Companies Act.
Online Filing: Facilitates quick and accurate filing with the Registrar of Companies (RoC).
Cost and Time Efficiency: Automates tasks, making the process quicker and more affordable.
FAQs
Yes, a Foreign National or NRI can be a director in an Indian Private Limited Company, but the company must have at least one Indian resident director.
The conversion process typically takes a few weeks to a few months, depending on factors like document preparation, government processing times, and any additional requirements.
In India, the forms required are:
- Form URC-1: For converting the LLP into a company.
- SPICe+ Form: For incorporating the new Private Limited Company.
- INC-23 and INC-24: For approval of the conversion.
- MOA and AOA: For registering the Memorandum and Articles of Association.
If you have a small business or a professional firm, an LLP is easier to manage with fewer rules. However, if you want to grow your business, get investors, and improve credibility, a Private Limited Company is a better choice, even though it has more rules. Choose LLP for simplicity and Private Limited Company for growth.
After conversion, the new Private Limited Company must inform the LLP Registrar about its dissolution, update all registrations and contracts, alter stationery, and ensure timely annual filings under the Companies Act, 2013. Additionally, it must maintain corporate records and comply with tax filings like GST and income tax.
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