Pursuant to Sec 56 of LLP Act along-with schedule 3 deal with conversion of Private Limited to LLP
PRE-REQUISITIES:
> Every member of the company must agree with the decision of conversion.
> All the members become the partners of an LLP and no one else.
> The latest copy of Income tax return is to be filed with ROC.
> Not just the members, all the creditors of the company must also agree with the conversion.
> Under Companies Act, no prosecution should have been initiated procedure to be followed
> No open (unsatisfied) charges should be pending against the company.
> At least one balance sheet and annual return should have been filed by the company after its incorporation.
> The company should be having share capital.
> The company should not be a Section 8 Company.
Procedure for Conversion of Company into LLP
Step 1: Meeting of Board of Directors of Company
> Call a meeting of the Board of Directors.
> Pass requisite Board Resolution for Conversion of Company into LLP.
> Requisite resolution to authorize any director to file all the necessary forms with MCA.
Step 2: Application for Name Availability
> The company will have to apply for reservation of name in form RUN-LLP of LLP and Get Name Approval Certificate from ROC.
Step 3: Filing of Incorporation Form with Required Documents
> File e-Form FiLLiP with ROC along with following Attachments:
> Address proof of the registered office of LLP. (for eg.: utility bill, NOC and proof of ownership)
> The subscription sheets.
> Consent to act as a designated partners and partners
> Identity and Resident proofs of designated partners and partners
> Detail of LLP(s) and/ or company(s) in which partner/ designated partner is a director/ designated partner.
Step 4: Filing of Application for Conversion into LLP
File E-FORM- 18 with ROC along with following ATTACHMENTS:
> Statement of the consent of shareholders (Mandatory)
> Statement of accounts of the company certified as true and correct by the independent auditor
> List of all the secured creditors along with their consent
> Copy of acknowledgement of latest income tax return (Mandatory)
Step 5: Certificate of Incorporation as LLP from ROC:
> After complying to all the formalities by the company and approved by the Ministry, ROC to issues a COI as to the conversion of LLP.
Step 6: Drafting of Limited Liability Partnership Agreement
1. Filing of E-Form-3
> This form provides information about the LLP Agreement entered into between the partners. This form is to be filed in 30 days from the date of conversion of the company into an LLP.
> Attachment Required: LLP Agreement
2. Filing of E-Form -14 (Intimation to ROC)
| S. No. | Condition | Particulars |
| i. | Turnover Limit | The Total sales, turnover or gross receipts in business of the Company do not exceed Sixty Lacs (60 Lacs) Rupees in any of the three preceding previous years |
| ii. | All the shareholders of Company became partner of the LLP | All the shareholders of the Company become partners of the LLP in the same proportion as their shareholding in the Company. |
| iii. | Capital Contribution and Profit Sharing Ration on Conversion. | The Capital Contribution and Profit Sharing ration of the shareholders of Company should be in the same proportion as their shareholding in the Company as on the date of Conversion. |
| iv. | No other consideration to partners. | No consideration other than share in profit and capital contribution in the LLP arises to partners. |
| v. | Profit Sharing Ration after conversion | The erstwhile shareholders of the Company continue to be entitled to receive at least 50 per cent in aggregate of the profits of the LLP for a period of 5 years from the date of conversion |
| vi. | Assets and Liabilities | All assets and liabilities of the Company become the assets and liabilities of the llp. |
| vii. | Accumulated Profit (Reserve) | No amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the Company for a period of 3 years from the date of conversion |
> After receiving incorporation certificate of LLP it has to be filed within 15 days of the date of conversion.
> ATTACHMENTS OF E-FORM 14
i. Copy of Certificate of Incorporation (COI) of LLP.
ii. Copy of incorporation document submitted in E-Form FiLLiP to ROC
Pursuant to Income Tax Act: –
The finance Act, 2010 has inserted a new Clause (xiiib) in section-47 and a new sub-section (4) in section 47A of the Act with effect from assessment year-2011-12.
If the following conditions are satisfied, then the transfer of capital asset or intangible asset to LLP or any transfer of share or shares held in Company by a share-holder on conversion of Company into LLP shall not be regarded as transfer:
> If All The Above Conditions (I) To (Vi) Are Complied With, The Conversion Shall Not Attract capital gains tax either for the Company or the Successor LLP or for the shareholders of the Company, who became partner in the successor LLP and get share of profits and capital in the LLP in lieu of their shares in the Company.
> If any of the above conditions (i) to (vi) is not complied with, then as per provisions of Section 47 A (4) such transfer of Capital Assets & Intangible assets deemed to be liable to Capital gains of the successor LLP or the Shareholders of the predecessor Company in the previous year in which such non-compliance took place.
Benefits under Income Tax Act:
> Saving of Dividend Distribution Tax. (There is no provision of Dividend Distribution Tax in LLP)
> Saving of MAT. (Because LLP don’t give credit of MAT)
> Saving of Income Tax due to Interest and remuneration payable to partners as salary payable to directors.
Detail Provisions:
The Finance Act, 2009 amended the Income-tax Act, 1961 to clarify that LLPs will be taxed on the same lines as general/ traditional partnership firms. However, the Tax implications upon the conversion of a Private Company or an unlisted Company into LLP were not clear by The Finance Act, 2009 and leaves doubts;
> The levy of Capital Gain Tax on Transfer of assets to LLP on conversion.
> Availability of carry forward of losses and of unabsorbed depreciation to the successor LLP.
> Availability of MAT credit to the successor LLP.
Lack of clarity on above matters was a roadblock to conversion of Company into LLPL. But The Finance Bill, 2010 Finance ministry addressed the above issues and opened the doors of conversion of Company to LLP. These amendments took effect from assessment year 2011-2012.
About the Author
Author is Ruchika Bhagat, FCA helping foreign companies in setting up and closure of business in India and complying with various tax laws applicable to foreign companies while establishing a business in India. Neeraj Bhagat & Co. Chartered Accountants, is a well-established Chartered Accountancy firm founded in the year 1997 with its head office at New Delhi.
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