How to Convert LLP into Private Limited Company

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How to Convert LLP into Private Limited Company

Limited Liability Partnership is a well recognised business model that came into existence after the introduction of LLP Act 2008. While an LLP is a great option for those who want to have limited liability while running a business, some individuals may feel the need to convert their LLP to Pvt Ltd. Company in future. This is because private ltd companies have better access to funding options such as equity and debt financing while still offering limited liability protection. 

Want to know how conversion of LLP to private ltd company is done? Go through this article where we explain all the steps involved in conversion of LLP into private limited company.

Basic Features of an LLP

Here are some basic features of a limited liability partnership:

1. LLP can hold the properties in its own name.

2. LLP is a separate legal entity. This means that LLP and its partners are considered to be separate from each other.

3. One partner can not be held liable for the action of the other partner.

4. Generally, LLP is governed by the provisions of the LLP agreement but in case there is no agreement, then LLP is governed by the schedule 1 of the LLP Act, 2008.

Basic Features of a Pvt Ltd Company

Now, let’s check out the features of a private limited company. Going through these features will allow you to understand why some business owners choose LLP to private limited conversion:

• A private limited company is considered a separate legal entity from its shareholders. This means that if a private limited company faces losses or falls in debt, the shareholders are not liable for it. Also, they do not receive all of the company’s gains.

• Unlike a public limited company, private limited company’s shares cannot be traded publicly.

• The company continues to exist even after the demise of a shareholder.

• Every private ltd company’s name must include “Private Limited”.

• Pvt Ltd Companies are viewed as less risky by investors. So, generally these companies have access to a wide range of funds for business growth.

• A Pvt Ltd Co can have a maximum of 200 members.

• It must have a minimum paid-up share capital as prescribed by the relevant law.

Conversion of LLP into Private Limited Company

Conversion of Limited Liability Partnership into Private Company looked like a gray area of law where the exact picture was not clear till 2013 because Companies Act 1956 did not have any enabling provisions of conversion of LLP into private ltd company. 

When the new Companies Act, 2013 was enacted, it contained the provisions that the Companies Act, 1956 lacked. Section 366 of Companies Act, 2013, provides that any partnership firm, LLP, cooperative society or any other business entity formed under any other law consisting of seven or more members, may at any time register under the Companies Act, 2013 as an unlimited company or company limited by shares by following the procedures as provided under the rules.

Procedure for conversion of LLP into Private Limited

1. Prerequisite Requirements: Before going for conversion of LLP into company, ensure the following things:

• Make sure your LLP has obtained the consent of the secured creditors;

• Publish a notice about such conversion; one in English and one in vernacular language to seek objections;

• There must be a minimum of 7 persons or more in the existing LLP.

2. Apply for DIN and DSC: If any member out of the 7 people does not have DIN or DSC, then apply for the same because having a DIN by the proposed director is a prerequisite to become a director in the company. To apply for DIN, you have to file a DIR-3 Form.

3. Name approval: Apply for the name by filing form number INC-1. Once the name has been approved, then it is valid for next 60 days

4. Preparation and filing of form URC-1: Following documents are to be attached with the form URC-1:

• A list containing the names, address, and occupations of all persons named therein as members.

• Details about the proposed directors of the company, including their names including surnames, DIN, residential address and their interest in other firms or bodies corporate along with their consent to act as director of the company;

• An affidavit by each of the directors to state that they are not disqualified to be a director under section 164(1);

• Partners details of the LLP;

• A copy of the LLP agreement and certificate of registration duly verified by at least two designated partners;

• A statement showing the particulars of the share capital;

• No objection certificate from all the secured creditors of the LLP;

• Certificate from a Company Secretary in Practice/Cost Accountant in Practice/Chartered Accountant in Practice certifying the compliance with all the provisions of Stamp Act, to the extent applicable.

5. MOA & AOA:

After getting approved of the form URC-1, file MOA and AOA with concerned ROC. Following forms are required to be filed with ROC:

• E-form INC-7: Used for Company Incorporation Application.

• E-form INC-22: Used for Registered office details.

• E-form DIR-12: Used for appointment of directors of the proposed company.

ROC may also ask for any further clarification, if required. Once all the clarifications are provided, the certificate of the incorporation is issued by the registrar of the companies. This certificate is the conclusive evidence of company incorporation.

Section 366 of the Companies Act, 2013 has provided existing LLPs an option to convert themselves in a Company. This is a welcome move by the Ministry of Corporate Affairs.

Benefits of Converting LLP to Pvt Ltd

Let’s explore the benefits of conversion of LLP to Private Limited Company:

• Pvt Limited Companies are registered under the Companies Act, 2013, and have to follow stringent rules and regulations. They are viewed as more credible and trustworthy. Hence, they have better access to funding options for business growth. 

• Private ltd companies have a better brand recognition and market reputation due to being viewed as more reliable.

• Several tax benefits are enjoyed by private companies such as lower tax rates on gains, ability to carry forward business losses for future years and deductions for expenses incurred for business reasons.

• Like LLPs, pvt limited companies offer limited liability protection to the owners. Hence, personal assets of owners remain safe when any losses or debts are incurred by a pvt ltd co.

• Private limited companies can issue shares, which allows for the transfer of ownership. This helps to bring in new investors.

Conclusion

Although LLP is one of the best business models in India, the need for conversion of LLP to private ltd company may eventually arise. Both LLP and private limited company offer limited liability protection. However, the difference between the LLP and private limited company lies in the fact that the latter company has more options for meeting funding requirements. Due to this key difference alone, many choose to convert limited liability partnership into private ltd company.

If you want to turn your LLP into pvt ltd co, connect with our experienced consultants at Registrationwala who can help you in setting up a private limited company!

Frequently Asked Questions (FAQs)

Q1. Can an LLP be converted into a pvt ltd company?

A. Yes, an LLP can be converted into a pvt ltd company by following the provisions outlined in Section 366 of the Companies Act 2013 and Company (Authorised to Register) Rules 2014.

Q2. What is Form URC 1?

A. Form URC 1 is an MCA form that allows LLPs and partnership firms to convert into companies like private ltd companies and public limited companies.

Q3. Which Section of Companies Act governs the conversion of an LLP into a Pvt Ltd Co?

A. Section 366 of the Act governs the conversion of an LLP into a Pvt Ltd Co.

Q4. What are the benefits of converting an LLP into a pvt limited?

A. Pvt limited companies have better access to funding, enhanced corporate structure and tax benefits. Due to these benefits, many LLPs convert into pvt ltd companies at a later stage.

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