Conversion of LLP to Private Company

Advantages of Conversion of LLP into Private Limited Company

• Losses And Depreciation

  After the conversion of LLP to Private Company, no consumption will be obtained on bookkeeping, as the depreciation and losses incurred in LLP will be carried forward on the conversion of business structure

• Preservation of Brand Value

  By converting LLP into Private Limited Company, it helps business entities to continue the brand name without any change or any further attempts on-brand advertisements.

• Limited Liability

  Conversion process forbids the liability of the partners only to the capital signed and unpaid by them.

• Employee Stock Ownership Plan

  Conversion of LLP to Private Company helps the business to offer stock ownership and ESOP plans. This kind of plan helps the companies to attract efficient workers or employees, as it provides incentive plans for employees to work in the company.

• Easy Fund Raising

  If the company registration procedure is right and strict, then the company structure will be more credible among others. This helps the company to raise funds in an easy way from external sources.

• Separate Legal Existence

  Conversion of  LLP to Private Company facilitates the separate management and ownership to pay attention to their work potential. The shareholders of the company are assigned with the responsibility to manage and operate the company without losing control in voting.

Checklist to convert an LLP to Private Company

Before you step into the conversion process, there are various requirements which you have to fulfil to convert an LLP into a Private Limited Company, for example, it is mandatory for an LLP to have seven members or partners and it is necessary to get the approval from all partners. An advertisement also has to be published in both local and national newspapers about the conversion, and you have to get No Objection Certificate (NOC) from the respective ROC in which location LLP is registered. After completing all these processes, the incorporation procedure will get started.

LLP vs. Private Limited Company

LLP is one of the preferred types of business especially for small businesses which holds the annual sales turnover of less than Rs 40 lakhs and a capital contribution of not more than Rs 25 lakhs. LLPs with these conditions do not have to do an audit every year, but it is mandatory to conduct an audit of each year for a private limited company. If the annual turnover of an LLP exceeds more than Rs 40 lakhs or if the capital contribution of LLP is more than 25 lakhs, then it is necessary to conduct an audit which in turn LLP will become almost similar as the private limited company, hence this is one of the reasons why the owners of LLP want to convert their business into a Private Limited Company.

Reasons for LLP Registration

• Helping small businesses aware with the conception of LLP.
• Easy to start, operate and control
• Provides the benefits of limited liability and also helps to organize their business internally.
• There is no need for an audit if annual turnover is not more than Rs 40 lakhs and capital contribution does not exceed the limit of Rs 25 lakhs.
• No need to pay Dividend Distribution Tax (DDT).
• No need to conduct any Board meeting or annual business meeting.
• Registration procedure of LLP is easy and simple when compared with a Private Limited Company.

Reasons for Private Limited Company Registration

LLP does not have any shareholders. All the owners of an LLP are considered as the Partners of the firm and are considered an unsuitable business for investment among many type investors such as Private Equity investors and Venture Capitalists; hence they do not possess any interest to indulge in the company management. The investor considers Private Limited Company is the best option. So if the LLP is growing it is better to convert the business into a private limited company.

Documents needed for the Conversion of LLP into a Private Limited Company

• Address Proof of the owner
• Identity Proof of the owner
• Passport size photograph of the owner

Documents needed at the time of filing of Form URC-1

• Details of Name, Address and Shares owned by the members along with the list of the members.
• Provide all the details such as Name, Address, passport number, DIN, with an expiry date of all the directors of the Company.
• In addition, file all mandatory documents to submit with the Registrar of Companies for the registration process
• Copy of Limited Liability Partnership agreement along with a list which holds the details of the partners of LLP and duly verified certified copy of the registration is also required.
• No-objection certificate or NOC from all the investors or creditors is required.
• Accounts statement of the company which is duly certified by the auditor, and it must not less than six days from the application applied date and the newspaper advertisement copy is required.
• The statement with the information of the nominal share capital of the LLP and the number of shares classified the number of shares shared among partners and the amount allotted for each share and the firm name with the word private limited at the end has to be provided.

The procedure of conversion of LLP into a Private Limited Company

Let’s dig in further and discuss each process in detail.

• The first step in the Conversion process in getting the name approval from the ROC (Registrar of Companies) by applying in online
• Obtaining DSC and DIN for all the seven directors of the company. DIN can be issued from the MCA portal.
• After obtaining the name approval from the Registrar of Companies, the applicant has to prepare and file the form No URC-1.
• The next step is to prepare and draft the formal Memorandum of Association (MOA) and Articles of Association (AOA) for the company and submit it to the Registrar of Companies.

The main reason for the conversion of an LLP into a Private Limited Company is just like the next step in the growth of the business. LLP structure of business does not fit for private equity or for venture capitalists; also investors prefer more in investing their funds in private limited companies. In the case of FDI also, private limited companies are conceived to be the preferable option over LLP. Therefore, the conversion of an LLP to a private limited company is a wise decision and shall be done by following all prescribed rules and regulations.