A Smart move to convert LLP to Pvt Ltd Company
The conversion of a limited liability partnership (LLP) to a private limited company (Pvt Ltd.) is a clever move for most of the businesses in India. This shift results in greater funding opportunities, efficiency in management, and reliability. This guide will provide you with the required details for converting a limited liability company to a private limited company in India.
Why Convert LLP to Private Limited Company?
An LLP is great for small businesses starting out. It gives partners limited liability protection and doesn’t need an audit if turnover is less than ₹40 lakhs and capital contribution is below ₹25 lakhs. But when you aim for bigger things, a Private Limited Company has some serious perks:
- Better Funding Options: Pvt Ltd companies can raise money more easily via equity as well as debt financing.
- Increased Credibility: These companies look more reliable and solid.
- Easier Ownership Transfer: Issuing shares makes it simpler to transfer ownership and bring in new investors.
- Limited Liability: Shareholders’ personal assets stay safe even if the business hits trouble.
- Tax Benefits: Lower tax rates on profits, carry forward losses, and deductions for business expenses.
Legal Framework for Conversion
Converting an LLP to a Pvt Ltd Company is governed by Section 366 of the Companies Act, 2013, and the Companies Rules, 2014. It includes filing forms with the Registrar of Companies (RoC) and getting necessary approvals.
Conditions for Conversion
Before you can convert, you need to meet some conditions:
- LLP must have at least 2 partners.
- All partners must agree to the conversion.
- Publish an ad about the conversion in local and national newspapers.
- Get a no-objection certificate (NOC) from the RoC where the LLP is registered.
- LLP must have no outstanding debts or liabilities.
- Obtain all necessary approvals and licenses.
- The new company name shouldn’t be too similar to any existing company or LLP.
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Steps to Convert LLP to Private Limited Company
- Name Approval
- Apply online to the RoC for the company name.
- Pick from items in INC Form-1.
- Once accepted, the name is valid for 60 days.
- Get Digital Signatures and DIN
- Get Digital Signature Certificate (DSC) and Digital Identification Number (DIN) for all partners.
- File the application on the Ministry of Corporate Affairs (MCA) portal.
- MCA processes and approves the application.
- File Form No. URC-1
After name approval, file Form No. URC-1 with these documents:
- Details of all members, like names, addresses, DINs, passport numbers, etc.
- The first directors’ list, complete with bios.
- Affidavits from first directors stating they aren’t banned under Section 164.
- Names and addresses of all LLP partners, with a copy of the LLP agreement.
- Statement of share capital, number of shares taken, and amount paid.
- NOC from all creditors.
- Statement of accounts and newspaper ad copy.
- Draft Memorandum
Memorandum drafting of Association and Articles of Association Once Form-1 is sanctioned by the RoC, draft the Memorandum of Association (MoA) and Articles of Association (AoA).
Completing the Conversion
After completing these steps and meeting all requirements, the LLP can be converted into a Private Limited Company. It requires careful planning and legal compliance to ensure everything goes smoothly.
Alternative Route: New Private Limited Company
Another way is to start a new Pvt Ltd Company and transfer the LLP’s business to it via a written agreement. This avoids needing a minimum of 7 partners and publishing ads but might incur capital gains tax and stamp duty.
Conclusion
Large amounts of growth potential can be unlocked by switching from an LLP to a Private Limited Company. It becomes easier to transfer ownership, you get more funding choices, and you look more trustworthy. Doing the right things and understanding the legal framework are important for making this change go smoothly. Make sure that your business goals and legal requirements are met whether you convert directly or start a new company.
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FAQ’s
The LLP need to have at least 2 partners; all partners must agree to the conversion; a conversion advertisement must be published in local and national newspapers; a no-objection certificate (NOC) from the RoC must be obtained; there should be no outstanding debts or liabilities; and all necessary approvals and licenses must be secured.