CONVERSION OF COMPANY TO LLP
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.
What are the 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.
What are the documents required for Conversion of Company into LLP ?
The following documents are required for making an application for conversion of company into LLP:
- Consent of all the shareholders or the copy of special resolution of the shareholders of the company for conversion of the Company into LLP.
- Consent letter by the Directors of the Company to become the Designated Partners in the proposed LLP in LLP Form 9
- No-Objection Certificate from Income Tax and GST authorities
- Complete List of all the creditors of the Company along with their consent
- Statement of assets and liabilities from the company certified by auditor
- Form 18 needs to be filed with ROC
- Statement of Shareholders
- Copy of acknowledgement of latest income tax return.
- Authorization Letter to make declarations.
What can be the reasons for Conversion of company into LLP ?
- When the Company passed the special resolution for conversion
- To avoid stringent penalties under the Companies Act, 2013
- When shareholder wants the partnership in the management of the business
- If the Company wants to take benefits of a partnership under Income tax act, 1961
What is the procedure of the Conversion of the Company into LLP ?
Step 1: Conduct the Board meeting to consider and approve the conversion of Company into LLP
Step 2: Reserve the new name of the proposed LLP
Step 3: Pass the special resolution in the general meeting of the Company
Step 4: File the Form MGT-14 with Registrar of Companies (RoC)
Step 5: File with the ROC LLP form 18: an application for conversion of the Company into LLP
Step 6: Obtain the Fresh Certificate of Incorporation of the LLP
Step 7: The name of the Company will be replaced from the ROC records by the new LLP
Step 8: Drafting and filing of the LLP Agreement in LLP Form 3 with ROC within 30 days’ of the registration of the new LLP
What will you receive in Conversion of Company to LLP package ?
- Preparation of documents for Conversion of the Company into LLP
- Shareholders’ Special Resolution in the Company
- New LLP name reservation for conversion
- DPIN of the proposed Designated Partners
- New LLP registration certificate
- LLP Agreement
- DSC tokens of the Designated Partners
- ROC filing compliance under conversion process