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Converting an LLP to a Private Limited Company

Converting an LLP to a Private Limited Company

A Private Limited Company is the most efficient, effective and undoubtedly the most popular form of business entity in India. Our country’s flexible economic policy has paved the way for many business entities to convert into a Pvt ltd company.

In this article, we are going to shed a light on one such business entity, a limited liability partnership and convert it into a private limited company.

Limited Liability Partnership

A limited liability partnership is a business entity whose structure is a combination for both partnership firm and a company. It has the partners like a partnership firm but like a company, it has limited liability and is a separate legal entity. It’s governed under the Limited Liability Partnership Act. Additionally, it doesn’t have any limitations on the maximum number of partners it can have.

Why convert limited liability partnership into a private limited company?

One might think that with perks like limited liability, unlimited partners and the structure of a partnership, an LLP has the best of both words. Then why would you want to convert your LLP into a Pvt Ltd Company? Well, there are several disadvantages of a limited liability partnership that makes it fall short of being the best business entity there is.

  1. You can’t make mistakes: An LLP, although flexible is also very rigid when it comes to performance and compliance requirements. You have to take care of each and every legal requirement, define the roles of every partner. As a result of so many details, the chances of ambiguity are high. And so is the punishment for making them. The penalties alone can turn anyone off from starting an LLP.
  2. Public Prospectus mandatory: As there is no limit to the number of members an LLP can have, there is also no limit to the information the general public is allowed to take a look at. Thus, an LLP has to post a prospectus, detailing its financial performance on an annual basis.
  3. It’s overly ambitious: A Limited Liability partnership is quite ambitious. It’s suited for entrepreneurs with a lot of financial support on their side. It should not be taken lightly because it’s not meant for novices.
  4. Not easy to get investors: Not many venture capitalists are interested in investing in a limited liability partnership. It’s not just a made up talk, it’s a FACT. Because of LLP’s structure, it doesn’t allow many to come forward and put their money.

So, if you want to deal with these disadvantages and get a business entity fit for newbies and oldies alike: choose private limited company.

Convert your LLP into a private limited company

Following are the steps to covert a Limited Liability partnership into a Private limited company:

  1. Get the NOC: You can’t make the decision of conversion alone. Get the no objection certificate from the Sub Divisional Magistrate (SDM) of your location to move forward with the conversion process.
  2. Get the name’s availability: Ensure that the name is available under Section 4 of Companies Act 2013.
  3. Advertise that you are about to convert: Advertise that you are about to convert your LLP into a private limited company. Use URC-2 form to publish the advertisement, both in your local language and the official language. It has to be one within 21 days after you’ve gotten the name’s availability.
  4. File the forms for company registration: 21 days after the advertisement, file the forms for company registration including SPICE form, Memorandum of Association, Articles of Association.
  5. File form URC-1: File form URC-1 and attach the following documents along with the following documents:
    1. NOC from the ROC
    2. Certification from a CA/CS that your LLP has been compliant throughout the course of its business.
    3. Account Statements of the LLP.

Submit the form and wait for it to be processed by the ROC. If there are issues with your application, you’ll be notified after which, you’ll need to take steps to make the necessary rectifications. If the form is accepted, your LLP will convert into a PVT LTD Company.

Give your LLP a better business structure today.

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