CA Pratik Anand
First of all we should discuss that why one should go for formation of LLP or conversion of company into LLP.
|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.|
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
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:
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
Rules for governing the LLP
Step-5 File Incorporation Documents in Form-2
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:
Attachments with LLP Form-18:
Prerequisites for filing LLP Form-18
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
(The author is a CA in practice at Delhi and can be contacted at: E-mail: firstname.lastname@example.org, Mobile: +91-9953199493)