Overview of Convert Private Limited Company to LLP

To Convert Private Limited to LLP, even if the partners change, LLP still retains its power and independence. This is because the LLP is regarded as an independent legal entity that supports the partners and, as the name suggests, bears limited liability. 

LLPs are the preferred business model because they are an alternative tool for the company’s business, providing the benefits of limited liability, while providing its members with the flexibility to organize internal governance based on mutually agreed arrangements, such as in a joint company.

To know about converting your private limited company into an LLP.

Governance and Benefits: 

The management and services of limited liability companies are governed by the 2008 Limited Liability Company Law. The law was formulated to support small and medium enterprises. To achieve this goal, the limited liability company has received many benefits. 

1. Greater scope for self-governance 
2. Compared with other organizations, LLP requires compliance procedures.
3. There is no upper limit on the number of partners. 
4. The law does not stipulate the minimum number of meetings with partners. 
5. LLP
6. MAT has sensitive statutory record-keeping obligations.
7. LLP profits are not subject to sales tax (DDT). 
8. There is no obligation to audit the LLP.

Eligibility to Convert Private Limited to LLP

The LLP Act allows private limited partnerships or unlisted joint-stock companies to become LLPs under the following conditions: 

1. At the time of registration, your assets have no security interest,
2. No e-forms are pending, 
3. The company has no outstanding allegations,
4. All shareholders have approved the conversion,
5.  All creditors of the company have approved the conversion,
6. The company must at least submit a balance sheet and annual report,
7. All shareholders approved the conversion to LLP partners,
8. The company must have a share capital,
9. The company may not be a company under Section 25 company or Section 8,

Companies that cannot be converted to LLP:

• All companies in the banking, finance, and insurance industries,
• All companies with asset-backed loans/collateral,
• In addition, all companies with FDI are subject to performance conditions. 
• All these companies have external commercial credit. 
• All companies that have received FDI in the approval process. 

Documents required to Convert Private Limited to LLP

• Each shareholder of the company approves the conversion of the company into an LLP registration form in the prescribed format
• Incorporation document 
• Declaration of application for registration of LLP
• Customs clearance certificate from the tax bureau Company assets
• The list of all lenders together with their agreed conversion+
• MAT does not apply to LLP.
• LLP income is not subject to contribution tax (DDT).
• No Audit is required for LLP.
• Approval from other countries and, if necessary
• Authorize the submission of a statement. 

Procedure to Convert Private Limited to LLP: 

Step 1-All designated partners who do not already have DIN must obtain DIN. 

The first step in the conversion to LLP is to determine the intended designated partner. These designated partners must receive their DIN in time. In addition, they must apply for a DSC before the DIN application because a digital signature is required to process the DIN application.

Step 2 – Convene a Meeting Board of Directors

The company must convene a board meeting and pass a resolution to approve the company’s conversion into an LLP. In this case, the above-mentioned resolution must be passed by the required majority. The decision of the board of directors must then be submitted to the MCA along with the required forms and attachments. 

Step 3- Request for LLP Name Reservation

Next, you need to reserve the name for the LLP and obtain the admission certificate. 

Step 4- Submit the registration form (FilLiP form) 

After the new name is a reserve and assigned, you need to apply for LLP registration together with the following documents; 

1. LLP Confirmation of office address 
2. Subscription form
3. Approval of designated partners
4. Confirmation of the identity of all partners 
5. Confirmation of the residences of all partners and designated partners,
6. The LLP partner is the detailed information of the partner’s other organization.

Step 5- Submit your application for conversion to LLP 

Form 18 must be filled out and submitted correctly to convert an existing business to LLP.

This form must be submitted together with the registration

Form 18 following information must be included: 

• The company’s shareholders agree to convert the company to an LLP. 
• The updated income tax return.
• The latest balance sheet and annual report submits to the MCA. 
• Any court decision or order that favors or opposes the company. 
• Availability of security interests in company assets. 
• In addition, the previous request for conversion regarding
• Whether the existing shareholder of the propose LLP was reject’s.
• The list of secured creditors who agree to the conversion of the company
• To independently verify the bank statement.
• The company’s shareholder statement.

Step 5-Receipt of the company formation contract 

Once all procedures are complete, the ROC will review the information provided and issue the company formation contract under all conditions meet. After that, the company became an LLP.

Step 6- Draft LLP contract

After registration, the designated partner must prepare a draft of the LLP contract, which must contain the following information:

1. The LLP’s name
2. All partners and the designated partner’s name 
3. governance rules 
4. Proposed business partners
5. The rights of business partners
6. Contribution form
7. The proportion of profit sharing and obligation

Step 7-eForm-3 file and eForm-14

The next step is to submit two forms, Form3 and Form 14. 

eForm3 contains LLP data. This form submits within 30 days of your company’s conversion to LLP, with an LLP agreement attached.

eForm-14 used to threaten the Registrar of Companies to become a limited company. This form submits within 15 days of conversion. 

Finally, the following documents attached to Form 14:

• Copy of certificate
• A copy of the EForm FiLLiP

Tax register by the limited liability company is transfer into the LLP:

In this section, we consider the tax implications of converting a private limited to an LLP. As far as the IT Act concern, a transfer from a private limited to an LLP no considered a “transfer” and therefore, capital gains tax is rarely levied

However, there is no need to levy capital gains tax on conversion if the following conditions are : 

• The company’s assets and liabilities become the assets and liabilities of the LLP. 
• All shareholders of the company become partners. 
• In addition, profit sharing, equity ratio. , the partner’s share corresponds to the company’s share.
• Except through capital contribution and profit-sharing agreements, the company’s shareholders have little direct or indirect benefits from LLP.
• In addition, in any three years prior to the conversion date, total sales, sales, and total sales will not exceed 6 million. 
• The total asset value recorded in the ledger for each of the past 3 years did not exceed Rs. 50 crore.

If you are looking for your Convert Private Limited to LLP, you can reach out to Chartered Accountants listed on CA in Delhi ‘s homepage.