Summary: Converting a private company into a Limited Liability Partnership (LLP) involves meeting specific conditions and following a structured process. Key conditions include no active security interest on company assets, shareholders becoming partners in the LLP, no pending e-forms, and compliance with statutory filings like AOC-4 and MGT-7. Section 8 companies are not eligible for conversion. The process begins with a board resolution to reserve the LLP name, followed by filing Form RUN LLP with necessary documents such as shareholder consents and board resolutions. Post name approval, Form 18 (conversion form) and FiLLiP (incorporation form) are filed, accompanied by required attachments like audited financials, shareholder declarations, and regulatory NOCs. Upon approval, the Registrar of Companies (ROC) issues a Conversion Certificate (Form 19). The LLP Agreement must then be filed in Form 3 within 30 days. Section 47(xiiib) of the Income Tax Act provides exemptions from capital gains tax for conversions meeting conditions like asset and liability transfer, proportional profit-sharing among partners, turnover below ₹60 lakhs, and asset value not exceeding ₹5 crores in preceding years. Additionally, no payouts from accumulated profits are permitted for three years post-conversion.
Conditions for Conversion of Private Company to LLP
1. At the time of making the application, there should be no active security interest on the company’s assets.
2. Only the shareholders of the converting company should become partners in the LLP.
3. There are no pending e-Forms for payment or processing.
4. At least one Financials (AOC-4) and Annual Return MGT-7/7A have been filed by the company.
5. The Company is not a Section 8 Company.
6. The company must have share capital.
STEPS TO CONVERT THE COMPANY INTO THE LLP
1. Pass board resolution to reserve the name of the LLP.
2. File form RUN LLP to reserve the name.
- RUN LLP shall mandatorily include:
a) Signed Application for conversion by authorized directors of the company.
b) Consent of all shareholders of the Private Company for conversion.
c) Board resolution for the conversion of the company to the LLP.
3. After the reservation of the name, file a conversion form (e-Form 18), along with an incorporation form (FiLLiP) and the consent of the Designated Partners in e-Form 9.
4. The FiLLiP form is filled out in the same way as for incorporating an LLP.
5. File form 18 after successfully filing form FiLLiP (Form 18 requires providing various details such as if any case is pending, total assets, total financial assets, and total revenue, etc.)
> The required attachments in Form 18 include:
1. Statement of Assets & Liabilities of the company certified by auditor not older than 15 days.
2. Auditor Certificate for not having the secured creditors
3. Auditor Certificate for company not doing the NBFC activity
4. Auditor Certificate certifying the shareholding of the company is accurate.
5. List of Secured Creditors and their consent. {If does not have any secured creditors, furnish an affidavit.}
6. In case the company is regulated by any specific body or authority, then approval from such authority or body is required.
7. latest income tax return
8. Declaration from shareholders regarding no secured creditors exists in the company.
9. NOC from shareholders of the company for conversion of company to LLP
10. Part B statement for all shareholders of the company
11. Additional documents as requested by the approving authority, such as:
a. the most recent Annual Return of the Company,
b. Latest audit report of the company.
c. ADT-1 form for the appointment of the Statutory Auditor of the Company,
d. An Ordinary Resolution or Board Resolution for the appointment of the Auditor.
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- ROC shall issue the Certificate of Conversion in Form 19, when Company is converted to LLP.
- File initial LLP Agreement in Form 3 within 30 days of the conversion.
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♦ EXEMPTION PROVIDED UNDER SECTION 47 FROM LEVY OF CAPITAL GAINS TAX:
Section 47 (xiiib) of the IT Act provides an exemption from levy of capital gains tax on the abovementioned transfers pursuant to conversion of a company to LLP subject to fulfilment of below specified conditions:
a. Transfer of all assets and liabilities: All the assets and liabilities of the company immediately before conversion become the assets and liabilities of LLP.
b. All shareholders to become partners in LLP: All the shareholders of the company immediately before conversion become the partners of LLP and their capital contribution and profit-sharing ratio in the LLP are in the same proportion as their shareholding in the company as on the date of conversion.
c. Consideration to shareholders: The shareholder of the company does not receive any consideration or benefit, other than by way of share in profit and capital contribution in LLP.
d. Profit sharing ratio of shareholders in LLP: The aggregate of the profit-sharing ratio of the shareholders of the company in LLP should not be less than 50% at any time during a period of 5 years from the date of conversion
e. Total sales, turnover or gross receipts in the business of the company: Must not exceed INR 60 lakhs in any of the 3 previous years preceding the previous year in which the conversion takes
f. Total value of the assets as appearing in the books of account of the company: Must not exceed INR 5 crores in any of the three previous years preceding the previous year in which the conversion takes
g. No amount to be paid to any partner out of accumulated profits of the company as appearing on conversion date for a period of 3 years from the date of conversion.
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