Business Re-organisation

Conversion of Private Limited Company into Limited Liability Partnership (LLP)

Limited Liability Partnerships (LLP) are emerging ever since the introduction of the Companies Act, 2013 as it is a form of business entity, which allows individual partners to be free from the concept of joint liability of partners in a partnership firm. As it is a unique Hybrid Combination of both Company and Partnership, this LLP is especially suitable for small to medium-sized business enterprises and professionals particularly

 

1.   Pre-Requisites For Conversion Of Company Into LLP

a.   There is no security interest in its assets subsisting or in force at the time of application

b.   The partners of the LLP to which it comprise all the shareholders of the Company and no one else.

c.   No eForms should be pending for payment or processing in respect of the Company.

d.   No open (unsatisfied) charges should be pending against the Company.

e.   At least one balance sheet and annual return should have been filed by the Company after its incorporation.

 

2.   Taxation On Conversion Of Company Into LLP

Conversion of Company into LLP is allowed under the provisions of the Companies Act, 2013 and the Limited Liability Partnership Act, 2008 but it really important to understand the tax implications of the same as well. in accordance with the Section 47(xiiib) of the Income Tax Act, 1961, conversion of Company into LLP will not attract capital gain tax subject to following conditions:

a.   All the assets and liabilities of the Company become the assets and liabilities of the LLP;

b.   all the shareholders of the Company become partners of the LLP and that the capital proportion and profit sharing ratio are in the same proportion as that of the shareholding in the Company;

c.   the shareholders does not receive any benefit, directly or indirectly in the LLP, except by way of capital contribution and profit sharing ratio.

d.   the aggregate of the profit sharing ratio of the shareholders of the Company in the LLP shall not be less than fifty per cent, at any time during the period of five years from the date of conversion (i.e. you can add new partners to the LLP but the aggregate of profit sharing ratio of previous partners shall not fall below 50%)

e.   the total sales, gross receipts and turnover in any of the three preceding year from the date of the conversion does not exceed Rs. 60 Lacks;

f.     no amount, is paid either directly or indirectly, from the accumulated profits to any of the partners for a period of three years from the date of conversion;

g.   the total value of assets as appearing in the books of account of the Company in any of the previous three years does not exceed Rs. 5 crores.

 

3.   PROCEDURE OF CONVERSION AS PER COMPANIES ACT

a.   Convene a Board Meeting to pass resolution for conversion of Company into LLP.

b.   Reserve the name using RUN-LLP as available mca.gov.in (not mandatory as the same can be reserved along with application to incorporate LLP as well) 

c.   File form for incorporation of Limited Liability Partnership (FiLLiP).

Attachments:

                                         i.    Registered office documents (for eg.: utility bill, NOC and proof of ownership)

                                        ii.    Identity proofs and residence proofs of partners and designated partners.

                                       iii.    Consent to act as designated partner as per the format provided in Rule 7 and Rule 10(8) in LLP Rules, 2009.

                                      iv.    Subscriber Sheet

                    v.    Details of Companies/LLPs in which the partners/designated partners are Directors/Partners or Designated Partners.


                d.   File Form-18.

Attachments:

                                         i.    Statement of consent of shareholders

                                        ii.    Statement of Assets and Liabilities of the company duly certified as true and correct by the auditor

                                       iii.    List of all the secured creditors along with their consent

                                      iv.    Approval from any other body/ authority.

                                       v.    Copy of acknowledgement of latest income tax return. 

e.   File Form 14 within fifteen days of approval of Form 18. As per Third Schedule of the Limited Liability Act, 2008, an application (physically) has to be filed with Registrar of Companies informing about such conversion within 15 days of such conversion. However, as per the help kit of the eForm 18, the eForm-14 is not required to be filed after filing eForm 18. Upon approval of eFORM-18 itself, the status of the company will be changed to ‘Converted to LLP’. Therefore, this appears to be contradictory. 

f.     File Form 3 within thirty days of incorporation of LLP attaching the LLP agreement mentioning therein the terms and conditions of Limited Liability Partnership among the partners.