Conversion of Private Limited / Unlisted Public Company into LLP

Krishna Govardhan

Conversion of Private Limited Company/ Unlisted Public Company into Limited Liability Partnership

Key Benefits:

1. One of the most important reasons for the conversion of a Company into a Limited Liability Partnership is derived from the Income Tax Act. The Income Tax Act, 1961 provides for Minimum Alternate Tax and payment of Dividend Distribution Tax by the Company, but a Limited Liability Partnership (i.e. LLP) would not liable to pay Dividend Distribution Tax.

2. There is no limit on number of partners in the LLP.

3. Minimal compliance with the ROC (i.e. Registrar of Company) and lower cost.

4. No Stamp Duty: There is no stamp duty on all movable and immovable properties of the company; on conversion of a private limited company into LLP as such properties automatically vest in the LLP. No instrument required to be executed and hence no stamp duty is required to be paid.

5. No Capital Gain Tax: No Capital gain tax shall be charged on transfer of property from the company to LLP, if the conditions stipulated in the Section 47(xiiib) of the Income Tax Act 1961, are fulfilled.

6. Carry forward and set off losses and unabsorbed depreciation of the company is deemed to be loss/depreciation of successor LLP the previous year in which conversion was effected, thus such loss can be carried for further 8 years in the hands of the successor LLP.

How to Convert a Private Limited Company/Unlisted Public Company in Limited Liability Partnership. These are following process mentioned below.

1. Obtain DPIN (Designated Partner Identification Number): Apply for DPIN with in e-form DIR-3 with ROC.

2. Call for Board Meeting: Pass Special Resolution for the conversion of the company into LLP.

3. Application for Name Applicability with e-form1 with ROC.

4. Incorporation documents & Subscriber’s Statement e-form-2 with ROC.

5. Application and Statement for conversion of a Private Limited Company/Unlisted Public Company into LLP e-form-18 with ROC:

• Statement of Shareholder
• Incorporation documents & Subscriber’s Statement e-form-2
• Statement of Assets and Liabilities of the company duly certified as true and fair by the Statutory Auditor.
• List of the entire secured creditors along with their consent to the conversion.
• NOC from income tax authorities and copy of latest acknowledgement of income tax return.

After all formalities and filings would be compiled with by the applicants, the ROC will issue a certificate of incorporation as conclusive evidence.

6. File LLP Agreement: After incorporation of LLP on initial LLP Agreement is to be filed within 30 days of incorporation of LLP. The user has to file the information in form-3 (information with regard to LLP Agreement and changes if and made therein.)

(The author is a commerce graduate and a Manager at KGMA LLP involved in Corporate Laws and Advisory Services. He can be approached at krishna@kgma.in)