Conversion of LLP into Private Limited Company

Conversion of LLP into Private Limited Company

Conversion of Limited Liability Partnership (LLP) into Private Limited Company

Conversion Process, Legal Formalities and ROC Compliances, Documents, expenses
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After introduction of LLP in India, most of the entrepreneurs has been opting Limited Liability Partnership due to less compliances and convenient to start at small level. When the business grows and demand arises for investment or issue of shares, LLP here does not solve this and the need arises for conversion of LLP into Private Limited. However Many Entrepreneurs voluntarily get conversion even though there no such need of outsiders investment. Although LLP is best for small business but Private Limited is also Super best for those who foresee future prospect of it. For such conversion there is need to prepare a list of documents and required to file the same with ROC in forms like URC-1, INC-32, INC-33 and INC-34 etc. While conversion there is need to consider the implications of income Tax provisions also like Capital Gain. If the Startup or Entrepreneurs have plans for expanding the business by raising equity capital, then the entity must be registered as a private limited company. However, there are various requirements which need to be satisfied for converting an LLP into a Private Limited Company, for instance, an LLP must have at least 7 partners, approval from all the partners is required, advertisement in the newspaper is to be done in a local and a national newspaper, a No Objection Certificate (NOC) is required from the ROC where such LLP is registered and then all the incorporation process has to be undertaken
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Procedure for Conversion of LLP into Company

Foremost condition for conversion is “There should be 7 (seven) or more member in the partnership firm at the time of conversion

Obtain Name Approval
Name Approval has to be obtained from the ROC by filing RUN form. Approved name remains be valid for 60 days.
Securing DSC and DIN
In case all 7 members, who are future directors of the company after conversion, do not have the Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all the future directors of the company must be obtained.
Filing of Form URC-1
After getting the approval of name from Registrar of Companies, the applicant must prepare & file the form No URC-1 along with various documents ( URC-1 Documents requirement mentioned separately)
E-form INC- 33 / INC-33 / INC-34
Company required to file e-form INC-32/ INC-33/ INC-34 along with URC-1 as linked form with all the attachment as required in normal Incorporation of Company like - MOA/AOA , INC-9, DIR-2, etc. (MOA/AOA physical in case of more than 7 subscribers otherwise INC-33 and INC-34)

Documents requirement for Conversion of LLP into Private Limited Company ( to be attach with Form URC – 1)

A list of all intended member’s names, addresses, occupations and details of shares held by them
A list of persons proposed as the first directors of the company
An affidavit from each of the persons proposed as the first directors, that he is not disqualified to be a director under sub-section (1) of section 164 and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief
A list containing the names and addresses of the partners of the Limited Liability Partnership
Copy of LLP Agreement
A statement of assets and liabilities of the Limited Liability Partnership duly certified by a chartered accountant in practice which is made as on a date not earlier than thirty days of the filing of form no.URC-1
A copy of latest income tax return of the Limited Liability Partnership
NOC from all creditors
The statement with the details of the nominal share capital of the firm and the number of shares separated, the number of shares taken and the amount remitted for each share and the name of the firm with the word private limited to be provided.
Copy of newspaper advertisement (Form No. URC-2), statement of accounts of the company which must not be 6 days preceding the date of the application and it must be duly certified by the auditor.
An undertaking that the proposed directors shall comply with the requirements of Indian Stamp Act, 1899 (2 of “1899)

Important Additional Points

  • TAX BENEFITS:- The conversion process provides certain tax benefits, however for availing the same several additional requirements needs to be met, for instance, maintaining the same shareholding by the partners as was in the previous LLP when the conversion takes place, for five years from conversion the former partners of such LLP who are now shareholders in the newly formed company cannot in total have shareholding less than 50 percent.
  • ALTERNATE COVERSION OPTION:- There is another option available for the LLP which is to establish a separate private limited company and after that get the whole business transferred to the private company with the help of a written agreement, in such case the restrictions mentioned above such as need for minimum 7 partners, newspaper publication, etc. are not needed to be met. However, in this situation, there is a levy of capital gain tax. Moreover, stamp duty implication is also applicable to such transfer.

Benefits of Conversion of LLP into Company

  • Can Issue Share to Investors
  • Better prospect for business growth and avail funding
  • No Capital Gain - The Gujarat High Court (HC) had held in the taxpayer’s case that conversion of a firm into a company was not a transfer (even before section 47(xiii) was introduced) and would not be subject to capital gains tax.
  • Free & Easy transferability of shares
  • A company enjoys better avenues for borrowing of funds from Banks and Financial Institutions. It can issue debentures, secured as well as unsecured and can also accept deposits from the public, etc
  • Separate Legal Entity and Limited Liability

Our Professional Fees & Expenses

Professional Fee
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Note : Govt. Fee and legal expenses payable as per actual and not included in above professional fee

How to Proceed?

Conversion of LLP into Private Limited Company

Frequently Asked Questions

    • In case of more than 7 partners in the LLP at the time of conversion into Company then Company have to file Scan copy of Physically prepared MOA & AOA.
      In above mentioned situation company have to file 1. URC-1 and 2. INC-32. No need of INC-33 and INC 34 in the above mentioned situations.
    • As per Rules, at the time of Conversion LLP have to file “copies of the principal and all subsequent deeds including the latest deed” with the ROC in e-form URC-1
    • In case of incorporation of a company where any of the subscribers of the MOA/AOA is signing at a place outside India, MOA & AOA shall be filled with INC 32 in the respective format as specified in Table A to J in Schedule I without filing form INC 33 and INC 34. (Means Physical attachment of MOA & AOA in e-form INC 32)
    • No need to file any separate form. Details in relation to Area Code and other details shall be mention in the form INC-32 itself and PAN & TAN shall be generate with Certificate of Incorporatio

Income Tax Implication on conversion of LLP into Company

Income Tax- capital Gain Rulings on conversion LLP into LLP
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