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CA Pratik Anand

First of all we should discuss that why one should go for formation of LLP or conversion of company into LLP.

LLP Company
It is more flexible to organize the internal structure of LLP. Comparatively it is complex to organize the internal structure of a company.
There is no maximum limit for the no. of partners in LLP. In the private limited company shareholders are limited to the extent of 200 shareholders.
Raising and utilization of funds depends on the partners will. Funds can be bought and utilized only as per the norms listed under the Companies Act, 2013.
LLP is exempt of Dividend Distribution Tax (DDT). Company has to pay DDT on dividend distribution.

 Other Benefits

On conversion of company into LLP, no capital gains tax is charged provided certain conditions as listed under section 47 are complied with.

Requirements for conversion into LLP

  • Consent of all shareholders should be obtained for conversion into LLP.
  • All the existing shareholders of the company become the designated partners of the LLP in order to save tax.
  • Latest copy of Income tax return is to be filed with ROC.
  • Consent of all creditors of the company is needed.
  • No prosecution should have been initiated under the Companies Act.

Procedure to be followed

Step-1 Obtain DPIN (Form DIR-3)

Choose designated partners of the proposed LLP and obtain DPIN for those designated partners who don’t have DIN/DPIN already.

Atleast two designated partners are required to incorporate an LLP and one of the designated partners must be resident of India. Since the form for DPIN is required to be self attested by the applicant therefore digital signature is mandatory before application for DPIN.

A Body Corporate can also be a partner in an LLP through a nominee.

Step-2 Meeting of board of directors of the Company

Step-3 File Form-1

Form 1 for application for reservation of name of LLP is to be filed. In case of conversion of company, the name of the existing company should be applied for as the name of the LLP. The details of the existing company which is to be converted are to be entered.

Following information is to be entered in Form 1:

  • Name of the proposed designated partners
  • State in which registered office of the LLP is to be situated
  • Proposed business activity of the LLP
  • Proposed partners capital contribution
  • Significance of the name applied for

The Board resolution of the existing company authorizing the conversion is to be attached with this form.

This form is to be digitally signed by the applicant.

Step-4 Draft the LLP agreement

The mutual rights and duties of partners inter se and those of the LLP and its partners shall be governed by the agreement between partners or between the LLP and the partners. This Agreement would be known as “LLP Agreement”.

Contents of Agreement are:

Name of LLP

Name of Partners & Designated Partners

Form of contribution

Profit Sharing ratio

Rights & Duties of Partners

Proposed Business

Rules for governing the LLP

Step-5 File Incorporation Documents in Form-2

  • This form contains basic information about the LLP as given in Form 1.
  • The address of the proposed registered office of the LLP is to be given in this form.
  • Capital contribution of each of the designated partners is to be given.
  • Number of LLPs and companies in which the designated partner is already a partner/director is to be given.
  • Attachments with Form 2 are:
    • Copy of Board Resolution of the company which is becoming designated partner through a nominee.
    • Proof of registered office of the proposed LLP (Mandatory attachment)
    • Subscriber sheet in the prescribed format.

Step-6 File Form-18 for Application for Conversion

This form is to be filed if a private limited company or any unlisted public Company is being converted to an LLP. It is required that eForm 18 should be filed together with filing of Form 2.

This form contains information about the conversion such as:

  • Whether all shareholders have agreed/consented to conversion?
  • Whether all shareholders have become partners of the LLP?
  • Whether the company has filed upto date Income Tax Returns?
  • Whether any prosecution or proceeding is initiated against the company?
  • Whether there are secured creditors in the company?
  • Whether the company has filed latest financial statements with ROC?
  • Whether any permission is needed for conversion?

Attachments with LLP Form-18:

  • Statement of shareholders of the Company (Mandatory to be attached)
  • Statement of Assets and Liabilities of the company duly certified as true and correct by the auditor (Mandatory, the statement should contain latest position as on date of application for conversion)
  • List of all the secured creditors along with their consent (Mandatory in case where there are secured creditors of the company and consent of all the secured creditors for conversion of company into limited liability partnership has been obtained)
  • Approval from any other body/ authority (Mandatory in case applicable approvals from the concerned body/ authority or authorities is required and have been obtained)
  • Copy of acknowledgement of latest income tax return (Mandatory)

Prerequisites for filing LLP Form-18

  • No eForms should be pending for payment or processing in respect of the company.
  • No open (unsatisfied) charges should be pending against the company.
  • Company should be having share capital.
  • Company should not be a ‘Section 25 company’/ ’Section 8 Company under Companies Act’2013’
  • At least one balance sheet and annual return should have been filed by the company after its incorporation.

Step-7 File Form-3

This Form Contains details regarding LLP agreement entered between the partners of the LLP. LLP Agreement is to be attached with this form.

Step-8 Obtain certificate of incorporation

Step-9 File Form-14 with the Registrar

After receiving the Certificate of Incorporation (COI), LLP is liable to file the form-14 with the registrar within 15 days of receipt of COI, to intimate the Registrar for conversion of company into LLP.

The following diagram illustrates the process of conversion of Company into LLP

LLP ConversionThis article has been compiled by CA Pratik Anand with inputs from Ms. Varsha Matlani.

(The author is a CA in practice at Delhi and can be contacted at: E-mail: contact@capratikanand.com, Mobile: +91-9953199493)

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Author Bio

Pratik Anand is the founder of youronlinefilings.in, an online startup for business registrations, annual business compliance services, Tax filings, book keeping, legal consultancy etc. He is a Chartered accountant by profession and has special flair and expertise in the area of direct Taxation. He View Full Profile

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  1. Ashwini says:

    We have one query regarding annual return of LLP .
    One private limited company converted in LLP in the F.Y.2016-17 The company filling the annual for the
    F.Y.2015-16 at the filling the Form AOC-4 the following error found at the time of pre-fill :
    The status of entered CIN is converted to LLP. This form cannot be filled for this status.
    How we can file the Annual return of company for the F.Y 2015-16

  2. Prakash Choudhary says:

    Dear Sir,

    Please reply to my query

    1) What is the Meaning of No Security Interest in its asset??
    2) Can the conversion takes place if procesutions started against it under the Income Tax Act, 1961.

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July 2024