Limited Liability Partnerships (LLP) are emerging ever since the introduction of the Companies Act, 2013 as it is a form of business entity, which allows individual partners to be free from the concept of joint liability of partners in a partnership firm. LLPs are preferred form of business as it is an alternative corporate business vehicle that provides the benefits of limited liability of a company but allows its members the flexibility of organizing their internal management on the basis of a mutually arrived agreement, as is the case in a partnership firm. But sometimes, it may happen that some of the Directors have incorporated a Company that needs to be converted into a LLP now. Accordingly, in this article, we shall discuss about the procedure and provisions with every aspect w.r.t. conversion of a Company into LLP:
Page Contents
Conversion of Company into LLP is allowed under the provisions of the Companies Act, 2013 and the Limited Liability Partnership Act, 2008 but it really important to understand the tax implications of the same as well. Now, one may opine that the conversion of Company into a LLP may attract capital gain tax as there shall be transfer of assets but a similar issue has been discussed in various judicial forums (Gujarat High Court in DCIT v. R L Kalathia (2016) and CIT v. Well Pack Packaging (2014) that conversion is not a “transfer” as defined under the IT Act and hence no capital gain tax shall be levied thereof. Further, in accordance with the Section 47(xiiib) of the Income Tax Act, 1961, conversion of Company into LLP will not attract capital gain tax subject to following conditions:
i. Convene a Board Meeting to pass resolution for conversion of Company into LLP.
ii. Reserve the name using RUN-LLP as available mca.gov.in (not mandatory as the same can be reserved along with application to incorporate LLP as well)
iii. File form for incorporation of Limited Liability Partnership (FiLLiP).
Attachments:
iv. File Form-18.
Attachments:
v. File Form 14 within fifteen days of approval of Form 18. As per Third Schedule of the Limited Liability Act, 2008, an application (physically) has to be filed with Registrar of Companies informing about such conversion within 15 days of such conversion. However, as per the help kit of the eForm 18, the eForm-14 is not required to be filed after filing eForm 18. Upon approval of eFORM-18 itself, the status of the company will be changed to ‘Converted to LLP’. Therefore, this appears to be contradictory.
vi. File Form 3 within thirty days of incorporation of LLP attaching the LLP agreement mentioning therein the terms and conditions of Limited Liability Partnership among the partners.
1. In case the Company is converted into LLP, will the provisions of MAT apply to the successor LLP?
Reply: No, as per the amendment in Section 115JAA of the Income Tax Act, 1961 in Finance Act, 2010.
2. What shall be taken as the cost of asset in case of conversion?
Reply: The actual cost of the block of assets in the case of the LLP shall be the written down value of the block of assets as in the case of the said company on the date of conversion of the company into the LLP.
3. Who shall pay tax in case of non-compliance of any of the conditions laid down in Section 47(xiiib) of the Income Tax Act, 1961, after conversion?
Reply: The amount of profits or gains arising from the transfer of such capital asset or intangible assets or share or shares not charged under section 45 by virtue of conditions laid down in the said proviso shall be deemed to be the profits and gains chargeable to tax of the successor LLP or the shareholder of the predecessor company, as the case may be, for the previous year in which the requirements of the said proviso are not complied with.
4. What shall happen to the accumulated loss or the accumulated depreciation, if any standing in the financials of the Company?
Reply: The accumulated loss and the un-absorbed depreciation of the predecessor Company, shall be deemed to be the loss or allowance for depreciation of the successor LLP for the purpose of the previous year in which business re-organisation was effected.
Further, in case of non-compliance of any of the provisions as stated in the Section Section 47(xiiib) of the Income Tax Act, 1961, then such set off of loss or allowance of depreciation in the hands of the successor LLP, shall be deemed to be the income of the LLP chargeable to tax.
{The author is a Company Secretary in Practice and can be reached at (M) 9999952595 and (E) [email protected]}
I would like to know that after the conversion to llp the asset of the company If sold what will be the taxation liability to llp and how the amount will be treated, used and can be transfered?
3. No eForms should be pending for payment or processing in respect of the Company.
Is it mentioned anywhere in the LLP Act ?
I have registered a company, but want to change it to LLP. the company registration has happened only a week ago. is it possible to go for the change to LLP.
How much time does it takes to get the status of LLP on MCA Portal after completing all the formalities regarding the conversion of a private limited company into a LLP?
In case of conversion of company into LLP payment of stamp duty on LLP agreement is required? And how much stamp duty is required as paid up capital of the company has converted into capital contribution in LLP.
And now My question is that at the time of incorporation of company or increasing of the authorized share capital of the company we had paid the stamp duty
And now we have converted the same PUC in to LLP contribution in which the designated partners are the share holder of converted company
Still we have to pay stamp duty at a rate of 0.1% of the contribution in case of contribution exceeds rs. 50000/-
I think it will be a cash caddying effect on taxes
Please clearfy
Thanks in advance