Conversion of LLP into private limited can be strategic move for expansion of business and will give greater flexibility in attracting investment without significantly affecting ownership structure and will also enhance the company’s credibility and market image. Below are the some of the basic legal compliance the LLP must follow while converting into Private limited company.
Applicable Section: Section 366 of the Companies Act, 2013
Applicable Rule: Rule 3 of the Companies (Authorised to register) Rules, 2014.
Prerequisite for LLP before Converting into Private Limited Company:
1. Statutory Filing: Before conversion, the LLP should not have default in statutory filing, if any should be filed and approved by the regulatory authority.
2. Share capital: Since the member of the LLP has limited liability, the company converted shall not be incorporated as unlimited company or Guarantee Company as per section 366.
3. Partner Assent: As per the section 366, the conversion will not take place without the assent of majority of such members present in the meeting or incase of proxies are allowed, by proxy.
4. Members: A LLP with less than 7 Members shall be register as the Private limited company.
5. Any Unresolved Debt: If LLP has any unresolved unsecured debt should get written Consent from creditor regarding the Conversion and NOC from the secured creditors.
Steps to be followed:
Step 1 Partner’s Meeting: The first step is conducting the partner’s meeting for considering the need and reason for conversion and to obtain their majority assent for conversion.
Step 2 Name approval: Next step is obtaining name approval for the company by filing RUN application; once name is approved it will be valid for 60 Days.
Step 3 Advertisement: After name approval an advertisement about the conversion must be published one in vernacular language and one in English language within district in which the LLP is registered in the FORM URC 2 inviting objections (if any) within 21 clear days from the advertisement publication date.
Step 4 Incorporation Procedures: Start with the Incorporation procedures such that:
- Obtaining DSC for the proposed directors
- Filing DIR 3 for obtaining DIN
- Drafting of MOA and AOA
Step 5 Execution of Documents and filing of forms: Execute the drafted documents and file SPICE part B form along with eMOA eAOA, Agile pro and INC 9 to incorporate Private limited company with the required documents.
Step 6 Filing URC 1: Filing URC 1 form as per rule 3 of the Companies (Authorised to register) Rules, 2014 along with the following document:
- Particulars of members/partners along with the details of shares held by them
- Declaration from proposed First Directors of the Company
- Affidavit from all the partners for dissolution of the LLP
- Incorporation certificate of LLP
- Copy of Newspaper advertisement
- Resolution passed by the partners of the LLP
- NOC from secured creditors along with charge holder, if applicable
- Statement of accounts of the LLP, prepared not later than 15 days preceding the date of application duly certified by auditor; if applicable
- Certificate from CA/ CS / CWA certifying the compliance with all provisions of Stamp Act
- Copy of latest income tax return of the LLP;
- Any other document as required.
Post conversion effect:
1. Dissolution: Upon successful registration of Private limited company, the LLP deemed to be dissolved under LLP act 2008, and removed from the register of the ROC.
2. Asset and liabilities: All the asset, liabilities, rights, obligations and privileges of the LLP will be transferred to name of the Private limited company.
3. Legal Proceeding: All the proceeding pending before any statutory or regulatory authority by or against the LLP will be continued, completed, and enforced by or against the Company. Any conviction ruling or order enforced by or against the LLP will be enforced by or against the company.
4. Contracts: Every existing contract to which the LLP was a party, shall continue in force on or after the date of registration as if the Company were the employer there under instead of the LLP.
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