Why to Converte a private limited company to an LLP
In recent years, Limited Liability Partnerships (LLPs) have become a popular choice for businesses in India. This structure provides partners with the flexibility to manage their internal operations on the basis of mutual agreement while also providing the benefits of limited liability. Converting a private limited company to an LLP can be advantageous for a variety of reasons, such as improved tax compliance, simplified administration, and reduced compliance requirements. This blog explores the crucial steps and factors that are necessary for the conversion of a company to an LLP in India.
Why Convert to an LLP?
Limited Liability: Just like a company, an LLP provides limited liability protection to its partners.
Tax Benefits: LLPs often enjoy tax advantages, including no dividend distribution tax and the ability to claim certain deductions.
Compliance and Costs: LLPs are subject to fewer regulatory compliances compared to companies, resulting in reduced administrative and financial burdens.
Flexibility: LLPs offer more flexibility in terms of ownership and management structures.
Steps to Convert a Company to an LLP
- Board Meeting and Approval
The first step includes convening a board meeting to pass a resolution converting the company into an LLP. The resolution should authorize one or more directors to apply for name availability and other necessary approvals. - Name Reservation
Apply for the LLP name reservation through the RUN-LLP (Reserve Unique Name-Limited Liability Partnership) service on the Ministry of Corporate Affairs (MCA) portal. Make sure that the proposed name adheres to the LLP naming guidelines. - Filing Form FiLLiP
Please submit the Form FiLLiP (Form for Incorporation of Limited Liability Partnership) to the Registrar of Companies (RoC). Include the LLP’s name, partners, and designated partners in this form. The following documents are attached:
– Consent of the partners
– Address proof of the registered office
– A subscription sheet signed by the partners - Filing Form 18
Form 18 is specifically for converting a company into an LLP. It includes information regarding the company, including its CIN (Corporate Identity Number), name, as well as other relevant information. Attachments to Form 18 include:- A statement of the company’s assets and liabilities certified by a chartered accountant
- A copy of the most recent income tax return acknowledgment is attached.
- Consent of all secured creditors
- Certificate of Incorporation
The RoC will issue a Certificate of Incorporation (COI) for the LLP after verifying and approving the forms, signifying the official conversion. - Filing an LLP Agreement
Within 30 days of the COI’s issuance, the partners must draft and submit the LLP Agreement to the RoC. This agreement outlines the management structure, profit-sharing ratio, and rights and responsibilities of the partners.
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Post-Conversion Compliance
Following the conversion, there are several compliance steps to take:
- Inform the concerned authorities about the conversion (e.g., income tax department, GST department, banks, etc.).
- Update stationery and business correspondences to reflect the LLP structure.
- Make sure that the LLP complies with ongoing filing requirements, like annual returns, statements of accounts, and solvency.
Summary
When someone wishes to convert a private limited company into a Limited Liability Partnership (LLP) in India, he or she will be able to enjoy a few advantages, which include limited liability, tax benefits, reduced compliance costs, and better management flexibility. The process of conversion starts with the approval of the board of directors, name reservation, the filing of Form FiLLiP for incorporation, and the submission of an application Form 18 for the details of the conversion. Obtaining a Certificate of Incorporation from the Registrar of Companies and drafting an LLP agreement outlining the partner’s rights and duties are the prerequisites. After the conversion, businesses should notify the relevant authorities, update their corporate correspondence, and keep in compliance with the mandatory filings. It will attract many businesses to use this strategy, making them more cost-efficient.
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FAQ’s
A limited liability partnership (LLP) restricts the liability of its partners to the extent of their contributions to the LLP. It combines the benefits of both a company and a partnership.
The whole process can take anywhere from a few weeks to a couple of months, depending on the efficiency of document submission and the RoC verification process.