Previous it was not possible to convert an LLP into a private limited company. However, according to section 366 of the Companies Act, 2013, any association firm or LLP, cooperative society, or any other business entity which is incorporated under any other law and which has at least two individuals members can get themselves registered as an unlimited association or as a company limited by shares or a company limited by guarantee.
There is no legal procedure for re-registering a limited liability partnership (LLP) as an organization limited by shares. It is not possible to transform the same corporate entity from one type to the other. But it is possible, however, to generate a new limited organization under the same name and then to transfer the undertaking and assets from the ‘old’ LLP to the new limited company. The new company will be a separate legal entity, with another company number from the earlier existing LLP. It will need a new VAT (value-added tax) registration and existing long-term contracts, such as leases, bank arrangements, etc.
Change of LLP into Private Limited Company
LLP registrations in India have risen by 55% during the Financial Year 2014-15 and is to begin to grow also further with rising awareness about Limited Liability Partnership. Most of the people opting for LLP registration are tiny businesses that do not predict any requirement for raising investment funds. However, some of the small businesses may at some point have a necessity to convert to a private limited company due to multiple reasons. Accordingly, in this article, we can see the process for the conversion of LLP into a private limited company.
What is the Process for conversion of Limited Liability Partnership into a private limited company?
Approval of Name
To arrange the name approved from the CRC, one needs to submit the RUN (Reserve Unique Name) form which is in designated e-format. Different details are to be filled in while submitting the RUN form. Similarly, if a new company in case the name which is approved by the ROC is available for use only for twenty days and sixty days in case of a change of name of an existing company.
Securing DSC and DIN
You have to apply for the Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all the members of the LLP who later the conversion will be the directors of the Private Limited Company, in case if they don’t have it.
Identity proof a self- attested address proof, and one recent passport size color photo of the applicant has to be provided along with the form. DIN can be achieved immediately through filing incorporation form on MCA portal.
Filing of Form URC – 1
Already, the CRC approves the name; form URC-1 has to be filed by the candidate. The following are the list of important documents which are to be submitted along with the form URC-1:
- Necessary details like name, shares held by the shareholders, address are to be provided along with the list of members.
- Names, address, passport number, the DIN with an expiry date of all the individual directors of the Private Limited Company has to be provided.
- According to section 164 of the Companies Act, 2013, an affidavit has to be provided by all the recommended first directors of the Private Limited Company stating that they are not disqualified from being a director in a company. Also, all the important documents to be filed with the ROC for the registration of the company should consist of such information that is complete and correct and proper to the best of their belief and knowledge.
- A duplicate copy of the LLP agreement along with a list consisting of the names and addresses of partners of LLP and a document of registration which is properly verified by 2 designated partners of LLP has to be provided.
- A statement to be provided by the organization which has the details of the nominal share capital of the firm and the number of shares into which it is separated, the number of shares taken and the amount spent for every share and the name of the firm with the addition of word private limited.
- A certificate of no-objection is to be provided by all the creditors.
- A properly certified statement of accounts of the company by the auditor which requirement is not of 6 days preceding the date of application and copy of the newspaper advertisement is to be provided by the company.
Pros of the Private Limited Company over LLP
LLP does not have members’ concept. So, all the proprietors of an LLP would be a preferred partner in the LLP. This structure is not suitable for Venture Capitalists and Private Equity Investors – who do not want to actively engage in the management of the Company. Therefore, property holders will only invest in a Private Limited Company. Therefore, if the owners have plans for developing the business by raising investment capital, then the entity must be registered as a private limited company.
Cons of Private Limited Company
Private limited corporations have a limit on the Number of shareholders whereas an LLP there is no such restriction.
The audit is not needed for a Limited Liability Partnership annual sales turnover is less than Rs.40 lakhs and the LLP should a capital contribution of fewer than Rs.25 lakhs. Whereas for a Private Limited Company, an audit is compulsory irrespective of selling turnover or capital of the company.
Corpseed thinks the greatest reason for an LLP to transform itself into a Private Limited company is the capital increase. Further, the LLP converted into a Private Limited company will have many opportunities to raise capital for the development of its business.