In India, there are many businesses that started as LLP (Limited Liability Partnership) but now wants to convert it to the private limited company to taste the more growth in the business or might be forgetting the benefit of equity capital. According to the provisions of ‘Section 366 of the Companies Act, 2013’ and ‘Company (Authorised to Register) Rules, 2014’, the LLP businesses have the rights to convert into the company.
But there are certain requirements which must be fulfilled for an LLP to convert into a Private Limited Company. For example, there must be a minimum of 7 partners in LLP, approval from all the partners is mandatory, advertisement in the local and national newspaper must be done, A NOC (No Objection Certificate) is needed from the ROC in which the registration of LLP is done and all the given below incorporation process must be done-
The approval of name will be acquired from the Registrar of Companies (ROC) after submitting the application in an e-format. For applying for this, many items must be selected which are stated in the ‘RUN FORM’. And if the authority accepts the name then it is valid until 60 days
If the 7 members who are going to be the directors of the company after the conversion does not have the DSC (Digital Signature Certificate) and DIN (Director Identification Number) must have this and if not then get it as soon as possible. To get the DIN, one must file an application which is available on the MCA Portal. The DIN application will be processed further and the central government will approve it through the office of regional director, the MCA (ministry of corporate affairs). Along with the form, one must also include address proof and identity proof along with the 1 recent colour passport size photo. All the above-mentioned documents must be attested by a practising chartered accountant or a practising cost assistant or a practising company secretary.
After completing the above-mentioned steps, the applicant must now file the form no. URC-1 along with the documents.
The conversion from LLP to the private limited companies, gives many tax benefits but to utilize them one has to meet certain requirements. For example, the same shareholding which was done in the LLP must be maintained by the partners during the conversion, for at least 5 years from the changed earlier partners of the LLP and now shareholders in the recently created company cannot assume 50 percent or lesser shareholding. For LLP, there is another option in which a separate private limited company can be established and later the entire business can be transferred in to the private company and this can be done with the written agreement. For this another option, the above conditions mentioned which includes the at least 7 partners required, advertisement through the newspaper and many more are not required to be done. But the capital gain tax will be charged in this situation. And also, there is an applicability of stamp duty implication in such transfer.