This article covers the concept of conversion of private limited company into an LLP. Each shareholder of the private limited company must submit a statement and consent for the conversion of a company into LLP along with the application.
Documents Required for Conversion of Company into LLP
The following documents have to be attached along with the application for conversion of the company into LLP:
- Consent of each of the shareholders of the company for conversion of the firm into LLP in the given format.
- Incorporation document in Form 2.
- Form 3- Form of application and declaration of incorporation of an LLP.
- Clearance/no-objection certificate from tax authorities.
- Statement of assets and liabilities from the company.
- List of all the creditors along with their consent.
- Approval from any other country.
- Authorization to make a declaration.
- Optional attachments, if any.
Concept of Conversion
Certificate of Registration
The LLP must intimate the registrar on the conversion of the company into LLP within 15 days from the date of conversion. The intimation must be processed in Form 14. The Registrar, after completion of the requisite formalities, will issue a certificate of registration. If the Registrar denies conversion, the private limited company can file an appeal before the Tribunal.
In case properties are registered in the name of the company, the LLP should notify the details of conversion to those authorities, along with the particulars of LLP.
Effect of Conversion
The following are some of the implication on the conversion of a company into an LLP:
- The private company will be deemed to be dissolved.
- The name of the private limited company will be removed from the register of the Registrar of Companies.
- On conversion, all properties, assets, interests, rights, privileges, liabilities and obligations of the private limited company are transferred to the LLP.
- The conversion has no bearing on the existing liabilities, obligations, agreements, contracts and continued employment.
- Permits or licenses issued under any written law to the Private Limited Company, and which is active before the date of conversion will not be transferred automatically to the Limited Liability Partnership. The terms of the license will the deciding factor here. Hence, in most cases, fresh GST registration or FSSAI registration would have to be obtained by the promoters.
A private limited company can be converted into an LLP under the following circumstances:
– The company has no security interest in its assets at the time of application.
– The partners of the LLP will be no one but the shareholders of the company.
Fee Payable for Conversion
The fees payable for conversion are as follows:
- LLP whose contribution is limited to Rs 1,00,000 – Rs. 500.
- LLP whose contribution exceeds Rs 1,00,000 but is limited to Rs 5,00,000 – Rs. 2000.
- LLP whose contribution exceeds Rs 5,00,000 but is limited to Rs 10,00,000 – Rs. 4000.
- LLP whose contribution exceeds Rs 10,00,000 – Rs. 5000.
Taxation on the Conversion of Company into LLP
The conversion of a company into an LLP will not attract any capital gain tax as this conversion is not defined as transfer under the IT Act. And also, it will not attract capital gain tax with subject to the following conditions:
- All assets and liabilities of the Company enhance the assets and liabilities of the LLP.
- All the shareholders of the Company fit the partners of the LLP
- The capital proportion and the ratio of profit-sharing of partners are in a similar proportion as that of the shareholding in the Company.
- The shareholders do not get any benefit, directly or indirectly in the LLP, except by way of capital addition and profit-sharing ratio.
- The total sales, gross and turnover in any of the 3 preceding years from the conversion date of the do not exceed Rs. 60 Lakhs.
- The total value of assets as resembling in the books of account of the Company in any of the past 3 years does not exceed Rs. 5 crores.
Procedure for Conversion of Company into LLP
Step 1: Obtain Director Identification Number
Obtain DIN for those designated partners who don’t possess DIN already.
Step 2: Board Meeting
The board meeting will be required to be held to consider the proposal of conversion. The board resolution is to be passed for Conversion of Company into LLP and to approve any director to Apply for Name of LLP.
Step 3: Application for Name Availability
The company will have to apply for reservation of name of LLP and get the name approval certificate from ROC.
Step 4: Attach Documents
File e-Form and then fill it with ROC along with the documents mentioned above.
Step 5: Filing of Application for Conversion into LLP
Form 18 is the form for the conversion of a company into an LLP. But it needs to be filed with Form for incorporation itself.
Step 6: Certificate of Incorporation as LLP from ROC
After complying to all the formalities by the company and approved by the Ministry, ROC to issues a COI as to the conversion of LLP.
Step 7: Filing of E-Form-3
This form provides details about the LLP Agreement entered into between the partners. This form is to be filed in 30 days from the date of conversion of the company into an LLP.