CONVERSION OF COMPANY TO LLP

 

Basic information

 

The Limited Liability Partnership Act, 2008 contains enabling provisions pursuant to which a Firm (set up under the Indian Partnership Act, 1932) and Private Company or Unlisted Public Company (Incorporated under Companies Act, 2013) would be able to convert themselves into LLPs. Provisions of Clause 58 and Schedule II to Schedule IV to the LLP Act, 2008 provide procedure in this regard.

 

A registered Limited Company in India (Private or Public) has a lot of complex formalities and incurs additional overheads for managing affairs including mandatory Board Meeting, maintenance of Statutory Records, filling of e-Forms with MCA etc. The Absence of such mandates for the LLPs is combined with advantages such as non-applicability of Dividend Distribution Tax on Profit Repatriation, Transfer of Profit Rules and Deemed Dividend Profit Issues, MAT Provisions.

 

Hence, it is a best option available to the Companies having issues of tones of stringent compliances under the Companies Act, 2013 to convert itself into the Limited Liability Partnership (LLP) with the core benefits of minimum 2 Designated Partners (out of the total no. of Partners in the LLP), No Minimum Capital requirement, no maintenance of Statutory Records, no requirement of Statutory Audit (Upto Certain criteria of Capital contribution and Turnover) and Management through just a simple LLP agreement.

 

Features of Conversion of Company TO LLP

 

1. Minimum Compliance requirement: LLP is required to file the Annual Return and Statement of the Accounts and Solvency once in a year and there are no other mandatory regular filings at very minimal amounts which are otherwise required under the Companies Act, 2013 and the same are costlier as compared to the Company filings.

 

2. Very Easy borrowings from Banks or Financial Institutions: LLP has no restrictions in borrowing powers as compared to the Companies which require special permission of members of the Company and the same business structures are highly recognized by the banks and financial institutions from lending point of view.

 

3. Smooth Management Process: The LLP is run by partners of the LLP through the simple LLP Agreement. Under the LLP, duties and responsibilities of the partners can be specifically defined and the work areas also can be defined at the time of appointment. It does not require the minimum no. partners as the Company can have upto 15 Directors in its Board. There are no such restrictions in case of LLP.

 

4. Advantages in Income Tax: There are certain Tax advantages available to the LLP form of business as compared to the Company (Formed under the Companies Act, 2013) such as, non-applicability of; Surcharge, Dividend Distribution Tax, Lower rate if Minimum Alternate Tax (MAT), lower rate of Income Tax (LLP considered Partnership Firm for the purpose of taxation), lower rate of Wealth Tax, freedom of accounting methods, no requirement of Statutory Audit (Upto certain threshold limits) and carry forward set off of loses, etc.