Thinking about turning your private limited company into a Limited Liability Partnership (LLP)? This move could bring big benefits like more flexibility, lower costs, and protection for partners. But, what are the first steps?
This guide will help you through the key steps to change your company into an LLP in India. We’ll cover everything from checking if you’re eligible to the conversion process and tax effects. It’s perfect for entrepreneurs, small business owners, or professionals looking to restructure their business.
Key Takeaways
- Understand the key differences between private limited companies and LLPs to determine the best structure for your business.
- Familiarize yourself with the eligibility criteria and shareholder consent requirements for converting a company into an LLP.
- Discover the step-by-step process for converting your company, including reserving the LLP name, filing incorporation documents, and obtaining necessary approvals.
- Explore the potential tax advantages and implications of transitioning from a company to an LLP.
- Learn about the ongoing compliance requirements and benefits of operating as an LLP in India.
Overview of Company and LLP Structures
Choosing the right business structure in India is key for entrepreneurs and small businesses. Two main options are private limited companies and Limited Liability Partnerships. Each has its own benefits, making it important to know the differences to pick the best for your business.
Differentiating Features of Private Limited Companies and LLPs
Private limited companies protect shareholders from personal liability and have their own legal identity. They also let you transfer shares easily. On the other hand, LLPs mix the ease of a partnership with the safety of limited liability for partners. They usually have fewer rules to follow than private limited companies.
Benefits of Converting a Company into an LLP
Switching a private limited company to an LLP can bring many benefits. These include protecting partners from personal liability, offering more flexibility in how the company is run and profits are shared. You might also get tax perks like carrying over losses and depreciation. Plus, there are fewer rules to follow than with a private limited company.
My Digital Filing can assist in changing a company to an LLP at a very fair prices. You’ll also get free expert advice. For help in switching your company to an LLP, contact now.
| Feature | Private Limited Company | Limited Liability Partnership (LLP) |
|---|---|---|
| Legal Structure | Separate legal entity | Separate legal entity |
| Liability | Limited liability for shareholders | Limited liability for partners |
| Ownership | Shareholders | Partners |
| Management | Board of Directors | Designated Partners |
| Compliance | Stricter regulations and filings | Fewer compliance requirements |
Choosing between a private limited company and an LLP depends on what your business needs and goals. Think about the pros and cons of each structure to make a choice that fits your long-term plans.
Eligibility Criteria for Conversion
Turning your private limited company or unlisted public company into a Limited Liability Partnership (LLP) has many benefits. But, not every business can make this switch. The main rules to qualify include:
Companies Eligible for Conversion to LLP
- The company must be a private limited company or an unlisted public company.
- There should be no active security interests or charges on the company’s assets.
- All shareholders of the company must agree to the change, and only the current shareholders can be partners in the LLP.
For the conversion to work, all shareholders must agree together. They need to vote to approve the change. The new LLP will have the same partners as the company did before.
Requirements for Shareholder Consent and Partnership Structure
Switching from a company to an LLP needs all shareholders to agree. They must vote to change and decide how the LLP will be structured. All the old company’s shareholders will be partners in the LLP.
After changing, the LLP needs at least two partners. There’s a fee to apply to the Ministry of Corporate Affairs (MCA). The cost for the LLP agreement also depends on the state.
| Statistic | Value |
|---|---|
| Minimum partners required in an LLP | 2 |
| Maximum partners allowed in an LLP | No limit |
| Turnover limit for LLP auditing requirement | Rs. 40 lakh |
| Contribution limit for LLP auditing requirement | Rs. 25 lakh |
Before turning into an LLP, companies must file all tax returns and financial statements. The new LLP can use the company’s unclaimed depreciation and losses. But, it can’t use the company’s MAT credit before the change.
Changing from a company to an LLP is a big decision that needs careful thought. You should look at the rules, what the shareholders think, and how it will affect your business. Knowing the details and benefits can help you decide if changing to an LLP is good for your business.
Pre-Conversion Compliance and Preparation
Before turning a company into a Limited Liability Partnership (LLP), make sure everything is in order. First, pay off any debts or security interests on the company’s assets. This means settling all debts and making sure the company’s finances are clear.
Also, the company must be current with all filings, like income tax returns and financial statements. This is key to avoid problems during the conversion and make the switch smooth.
Obtaining Consent from Creditors and Regulatory Authorities
Getting the company changed to an LLP means getting creditors and regulatory bodies on board. This is vital to handle any issues or obligations that come up during the change. With the right approvals, the company can move forward without trouble.
The steps to change a company to an LLP include paying off debts, meeting regulatory needs, and getting creditor and authority approval. By doing these things first, the company sets itself up for a successful change to an LLP.
To answer the question “does LLP need to pass resolution?”, yes, it does. For a company to become an LLP, it must vote on a special resolution. This resolution needs at least 75% of the shareholders to agree to the change and the LLP agreement terms.
Step-by-Step Conversion Process
Turning a private company into an LLP is a detailed process. It starts with reserving the LLP name and getting approval from the Registrar of Companies (ROC). You need to file the RUN LLP form and attach a board resolution for name approval.
Next, you must file the incorporation documents. This includes the FiLLiP form and Form 9 (consent of designated partners). You also need to submit supporting documents like proof of identity and address for partners, registered office proof, and the subscribers’ sheet.
Reserving the LLP Name and Obtaining Approval
The first step is to reserve the LLP name you want and get approval from the Registrar of Companies (ROC). You do this by filing the RUN LLP form and attaching a board resolution for the name.
Filing Incorporation Documents and Statements
After reserving the name, you need to file the incorporation documents. These include the FiLLiP form and Form 9 (consent of designated partners). You also have to submit supporting documents like proof of identity and address for partners, registered office proof, and the subscribers’ sheet.
My Digital Filing can help with conversion of Company into LLP at a good price. You also get free professional consultancy.
| Requirement | Details |
|---|---|
| Number of designated partners required for a firm to become an LLP | Minimum of 2 |
| Requirement for at least one Indian resident as a partner | At least one partner must be an Indian resident |
| Number of days to file E-Form-3 after conversion into an LLP | Must be filed within 30 days from the conversion date |
| Number of days to file E-Form-14 (Intimation to ROC) after conversion | Must be filed within 15 days of the conversion date |
The process of changing a private company to an LLP follows the Limited Liability Partnership Act, 2008. By following these steps, businesses can easily switch to an LLP.
Quick Guide for how to Convert company into LLP
Changing your business from a private limited company to a Limited Liability Partnership (LLP) can be smart. It gives you more flexibility and protects you from more risks. If you’re thinking about how to change to an LLP or how to change directors in an LLP, this guide will help you with the key steps.
- Get Director Identification Numbers (DINs) for all future partners in the LLP.
- Have a board meeting and vote to change from a company to an LLP.
- Get written okay from all shareholders for the change.
- Prepare and send in the needed documents, like Form 18 for the change request.
- Get the Certificate of Registration from the Registrar of Companies (ROC) after the change is approved.
- File the LLP Agreement in Form 3 within 30 days after the change.
The rules for changing to an LLP come from the Limited Liability Partnership Act, 2008. Companies must follow the rules set by the Ministry of Corporate Affairs (MCA). It’s key to be in line with the law, do your homework, and meet MCA standards for a smooth change.
“The switch to an LLP brings more flexibility, less paperwork, and tax benefits. It’s a good choice for many companies.”
By using this guide, you can easily go through the how to change to an LLP and how to change directors in an LLP steps. This will let you enjoy the perks of being an LLP.
Documentation Requirements
Turning a private limited company into a Limited Liability Partnership (LLP) requires careful documentation. You must collect and send several key documents to start the process. Here’s what you’ll need for the conversion application.
Key Documents Needed for Conversion Application
- Copy of the company’s certificate of incorporation
- Board resolution approving the conversion of the company into an LLP
- Written consent from all shareholders of the company
- Latest financial statements certified by a chartered accountant
- Acknowledged copy of the company’s latest income tax return
- Details and consent of the proposed partners of the LLP
Make sure all documents are correct and show the company’s current status before starting the conversion.
The change from a private limited company to an LLP follows Section 56 of the LLP Act, 2008. After meeting the conversion needs, the registrar gives a Certificate of registration in Form 19. The LLP must also report the conversion within 15 days of registration in e-Form 14 LLP.
Having the right documents and following the laws is key for a smooth conversion. By making sure all documents are ready, you can make the switch to an LLP easier.
Post-Conversion Compliance and LLP Agreement
After turning your company into a Limited Liability Partnership (LLP), you must follow some key rules. First, you need to file the LLP Agreement with the Registrar within 30 days of getting the Certificate of Registration. This document details the rights, duties, and how profits will be shared among partners. It’s vital to have a clear LLP Agreement for your business to run smoothly.
You also need to follow the rules of the LLP Act, 2008, and related laws. This means filing annual reports, keeping accurate books of accounts, and following other rules to keep your LLP legal and running well.
Filing the LLP Agreement with Registrar
You must send the LLP Agreement to the Registrar within 30 days after getting the Certificate of Registration. This document sets out the rights, duties, and profit sharing among partners. It helps your LLP work smoothly.
Ongoing Compliance under LLP Act and Rules
Being an LLP means you must stick to the LLP Act, 2008, and its rules. You’ll need to file annual reports, keep accurate books of accounts, and follow other rules. This keeps your LLP legal and in good standing.
| Key Compliance Requirements for LLPs | Timeline |
|---|---|
| Filing LLP Agreement with Registrar | Within 30 days of receiving Certificate of Registration |
| Filing Annual Returns | Annually |
| Maintaining Books of Accounts | Ongoing |
| Other Regulatory Filings | As per LLP Act and Rules |
Meeting these post-conversion rules helps your new LLP run smoothly and legally. Remember, filing the LLP Agreement on time and following the rules are key to your business’s success.
Income Tax Implications
Turning a company into a Limited Liability Partnership (LLP) can change how taxes work. The good news is, this change usually doesn’t lead to capital gains tax under Section 47 of the Income Tax Act. This is true if certain conditions are met.
Capital Gains Tax Exemption under Section 47
Section 47(xiiib) of the Income Tax Act gives a break from capital gains tax. This happens when a private or unlisted public company turns into an LLP. This break is for the transfer of capital assets, like intangible assets, from the company to the LLP. To get this break, you must:
- Move all assets and liabilities to the LLP.
- Have all company shareholders become LLP partners, in the same share ratio as before.
- Keep the profit-sharing ratio in the LLP the same as in the company.
- Make sure the company’s sales, turnover, or gross receipts don’t go over ₹60 lakhs. Also, the total asset value should not exceed ₹5 crores in the given years.
Treatment of Unabsorbed Losses and MAT Credit
The LLP can carry forward and set off the company’s unabsorbed depreciation and losses. But, any Minimum Alternate Tax (MAT) credit the company has won’t move to the LLP. This means the LLP can’t use the MAT credit that’s been saved up.
“The conversion of a company into an LLP is generally exempt from capital gains tax under Section 47 of the Income Tax Act, provided certain conditions are met.”
Changing a company into an LLP can have complex tax effects. It’s important to get expert advice. This ensures you follow tax laws and use available breaks.
Fees and Charges Involved
Turning a company into a Limited Liability Partnership (LLP) comes with various fees and charges. These include application fees, stamp duty, and costs for legal and financial advisors. Knowing these costs helps plan the conversion smoothly.
Breakdown of Application, Filing, and Professional Fees
The main fees for turning a company into an LLP are:
- Application Fee: The fee for applying to change a company to an LLP is between ₹15,000 and ₹50,000. This depends on the business’s size and complexity.
- Stamp Duty: The cost for the LLP Agreement varies by state in India. It’s usually between ₹1,000 and ₹5,000.
- Professional Fees: Fees for chartered accountants and other advisors can be ₹10,000 to ₹25,000. This depends on the services needed.
The total cost of the conversion depends on your business’s needs and where it’s located. Planning for these fees ensures a smooth move from a company to an LLP structure.
“The conversion of a company into an LLP can be a strategic move to enhance your business’s flexibility and liability protection, but it’s crucial to understand the associated fees and charges involved.”
Certificate of Registration on Conversion
When a private limited company changes to a Limited Liability Partnership (LLP), it gets a Certificate of Registration from the Registrar of Companies (ROC). This document proves the company has changed to an LLP.
This Certificate of Registration is a big deal. It makes the LLP a new, separate business entity. It’s needed for things like opening bank accounts and signing contracts.
The Certificate of Registration shows the LLP meets all the rules and laws. It proves the LLP is legal and ready to work within the law.
Getting this Certificate is key to changing from a private limited company to an LLP. It gives the LLP its legal identity. It also lets the LLP enjoy the benefits of being an LLP.
| Key Benefits of LLP Conversion | Advantages over Partnership Firms |
|---|---|
|
|
The Certificate of Registration on Conversion is very important. It brings new chances for the business. It helps the business grow in a changing market.
“The Certificate of Registration is the key that unlocks the door to a world of opportunities for the converted LLP.”
Advantages of Converting to an LLP
Turning a company into a Limited Liability Partnership (LLP) has many benefits for businesses in India. A big plus is the
limited liability protection for partners
. In an LLP, each partner’s liability is capped at their investment. This keeps their personal stuff safe from the company’s debts.
Another big plus is the
flexibility in management and profit sharing
LLPs let partners make their own rules for sharing profits and managing the business. This means they can decide how profits are split and control the business more.
Also, going from a company to an LLP might save on taxes. You can use past losses and depreciation in the new LLP. Plus, there’s no tax on sharing profits in an LLP, making it cheaper.
So, the main perks of changing a what are the advantages of conversion of pvt ltd to llp? to an LLP are better protection, more control, and tax savings. It’s a smart move for businesses wanting to improve their setup and finances.
| Key Advantages of Converting to an LLP | Details |
|---|---|
| Limited Liability Protection for Partners | The liability of each partner is limited to their capital contribution, protecting their personal assets. |
| Flexibility in Management and Profit Sharing | Partners can determine their own profit-sharing ratios and have more autonomy in day-to-day management. |
| Potential Tax Benefits | Ability to carry forward unabsorbed losses and depreciation, and exemption from Dividend Distribution Tax. |
The what are the benefits of conversion of company into llp? of changing a company to an LLP is great for Indian businesses. It brings many strategic and operational benefits to help them succeed.
Conclusion
Turning a private limited company into a Limited Liability Partnership (LLP) can be a smart move for many businesses in India. It’s important to know the rules, how to change, the tax effects, and the main benefits. This way, you can decide if changing your company’s structure to an LLP is right for you.
This quick guide has all you need to know about changing to an LLP. It helps you go through the process smoothly and use the benefits of an LLP. An LLP gives partners limited liability and more freedom in managing and sharing profits. Understanding the change and its effects can help your company grow and succeed in India’s fast-changing market.
FAQ
Q: What are the key eligibility criteria for converting a private limited company into an LLP?
A: To convert a company to an LLP, it must be a private limited company or an unlisted public company. There can’t be any active security interests or charges on its assets. All shareholders must agree to the change, and only they can become LLP partners.
Q: What is the process for converting a private limited company into an LLP?
A: The process includes several steps: 1) Get Director Identification Numbers (DINs) for all partners. 2) Have a board meeting and pass a resolution for the conversion. 3) Get written consent from all shareholders. 4) Prepare and file documents like Form 18 for the application. 5) After approval, get the Certificate of Registration from the Registrar of Companies (ROC).
Q: What are the tax benefits of converting a company into an LLP?
A: Converting a company to an LLP can be tax-free under Section 47 of the Income Tax Act. It allows for a tax-neutral transfer of assets and liabilities. The LLP can also carry forward and set off the company’s unabsorbed depreciation and losses. But, the Minimum Alternate Tax (MAT) credit is not transferred to the LLP.
Q: What are the key advantages of converting a private limited company into an LLP?
A: The main benefits include: 1) Limited liability protection for partners. 2) Flexibility in management and profit-sharing. 3) Potential tax benefits, like carrying forward unabsorbed losses and depreciation from the company.
Q: What are the fees and charges involved in the conversion process?
A: The process has various fees and charges. These include the application fee, stamp duty on the LLP Agreement, and fees for professional services. There are also filing fees for submitting forms and documents to the ROC.
Q: What is the Certificate of Registration issued upon successful conversion?
A: After the conversion is complete, the ROC issues a Certificate of Registration to the new LLP. This certificate proves the LLP’s legal existence. It’s needed for things like opening bank accounts, signing contracts, and doing business.
