Conversion of LLP Into Private Limited Company

Introduction

Due to the advantages of forming a private limited company, some businesses in India start as Limited Liability Partnerships (LLPs) but eventually intend to undergo conversion.

What are Private Limited Companies and Limited Liability Partnerships?

Private limited companies (PLCs) and limited liability partnerships (LLPs) are two distinct company structures in India, each having specific benefits and drawbacks.Limited Liability Partnerships (LLPs) are simple to form and maintain and offer flexibility and limited liability to their partners.

A Private Limited Business has greater legitimacy. It notifies the wider public that your company is a genuine enterprise. To guarantee a smooth transition, a few legal and procedural requirements must be followed when converting an LLP into a private limited company. 

This blog post discusses the process of conversion of LLP into  Private Limited Company, along with the reasons to think about it, the steps needed, and the ramifications for compliance, taxation, and regulations. 

Advantages in Conversion of LLP into Private Limited Company

The advantages of changing an LLP into a private limited company are as follows:

1. Growth: The company’s conversion rate contributes to its ability to grow and expand.
2. Capital Raising: Companies can get money from investors more easily and conveniently than with LLPs. Giving them a piece of the equity will turn them into a partner in your company. If not, you can raise debt capital by issuing them debentures.
3. Additional Share Issue: Companies may choose to raise capital at any moment by issuing equity shares. Bonuses may also be given to staff members in the form of ESOPs.
4. Reduced Taxes: LLPs pay a fixed 30% income tax rate, while corporations pay a 25% income tax rate. 
5. Tax Exemption: No capital gains tax is applied when an LLP converts to a company. Additionally, it permits losses and unabsorbed depreciation to be carried forward.
6. Conversion to Public Limited Company: To expand their activities and raise funds from the general public, private limited companies may eventually be transformed into public limited corporations.
7. Retain Goodwill: By converting an LLP into a private limited company, the company can keep its goodwill and brand identity.
8. International Investments: Compared to LLPs, private limited businesses have an easier time raising capital from global investors.

Requirements for Conversion of LLP into Private Limited Company

The following criteria must be met for the Conversion of LLP into Private Limited Company:

1. At least two of the LLP’s partners should go on to become directors and shareholders of the private limited business.
2. The conversion of an LLP into a private limited company requires the approval of all LLP partners.
3. The LLP was required to adhere to all statutory requirements.
4. The conversion of an LLC to a private limited company must be announced in at least two publications, one in the local vernacular and one in English, depending on where the LLP is located.
5. It is recommended to receive a certificate of no objection from the registrar.

Procedure for Conversion of LLP into Private Limited Company

The procedure for converting an LLP into a private limited company is as follows:

1. Getting permission for a name
2. Getting a Digital Signature Certificate and Director’s Identification Number
3. Submitting Form URC-1, SPICE+, and other relevant forms
4. Creating the Association’s Articles and Memorandum of Association
5. Distributing certificates of shares

Conclusion

In conclusion, companies wishing to grow and seek money may find converting an LLP into a Private Limited Company advantageous. It provides limited liability protection for its stockholders and increases ownership, management, and fundraising freedom.

However, several legal regulations and processes are associated with the conversion process, so it’s crucial to ensure that all the appropriate steps are taken and all the necessary documents are presented on time. Getting expert advice can assist in guaranteeing a seamless and fruitful conversion procedure. 

If you need assistance with Converting an LLP into a Private Limited Company, reach out to Lawgical Adda for expert guidance. Contact us today!

Lawgical Adda’s solution provides end-to-end management of corporate governance and secretarial compliances, encompassing every phase of the entity life cycle. Don’t hesitate to get in touch with us if you want more information on the compliance standards and to outsource them to us.