For many thriving businesses, a Limited Liability Partnership (LLP) offers a perfect blend of partnership flexibility and limited liability protection. However, as ambitions grow and the need for significant capital infusion or enhanced corporate governance arises, the LLP structure might begin to show it’s limitations. This is where converting it to a Private Limited Company becomes a strategic imperative.
At Praman Advisors Private Limited, we specialize in facilitating this crucial transition. Our expertise in corporate compliance and legal tech ensures a smooth, efficient and fully compliant conversion, empowering your business to unlock new growth avenues.
1. Overview: Why Convert Your LLP?
A Limited Liability Partnership (LLP) provides limited liability to it’s partners and a flexible management structure. It is often favoured by startups and smaller professional firms due to it’s ease of formation and lower compliance burden compared to a Private Limited Company.
However, LLPs face restrictions when it comes to raising equity capital from external investors like venture capitalists or angel investors. They also lack the perception of a robust corporate structure that many larger clients and financial institutions prefer. Converting to a Private Limited Company addresses these limitations, positioning your business for accelerated growth and wider opportunities.
The shift from an LLP to a Private Limited Company offers a host of significant advantages:-
- Enhanced Access to Capital: Private Limited Companies can raise capital through equity by issuing shares to a wider range of investors including angel investors, venture capitalists and private equity firms. This is a primary driver for conversion as LLPs cannot issue equity.
- Increased Credibility and Brand Image: A Private Limited Company generally enjoys higher credibility and trust from customers, suppliers, banks and potential investors. It is more structured corporate governance framework signals stability and professionalism.
- Scalability and Growth Opportunities: The Private Limited Company structure is better suited for aggressive scaling and expansion. It allows for a clear separation of ownership and management, facilitating the onboarding of professional management and diverse expertise.
- Employee Stock Options (ESOPs): Private Limited Companies can offer Employee Stock Options (ESOPs) to attract and retain top talent, a crucial tool for growing businesses that is not available to LLPs.
- Perpetual Succession: Like an LLP, a Private Limited Company has perpetual succession, meaning it’s existence is independent of it’s members. However, the corporate structure of a Private Limited Company often provides a more robust framework for long-term business continuity.
- Foreign Investment Opportunities: Private Limited Companies are generally more attractive to foreign investors as they are a globally recognized and understood business structure.
- Clearer Governance and Management: While LLPs offer flexibility, Private Limited Companies have a more defined legal and operational framework, leading to clearer roles, responsibilities and decision-making processes.
The Conversion of an LLP to a Private Limited Company requires comprehensive documentation. Our team will guide you through this process, ensuring all necessary papers are in order. Here is a general list:-
From the LLP/Proposed Directors & Shareholders:
- Identity Proof: PAN Card, Aadhaar Card, Voter ID, Passport, or Driving License of all proposed directors and shareholders.
- Address Proof: Latest bank statement, telephone bill, mobile bill, or electricity bill (not older than 02 months) of all proposed directors and shareholders.
- Passport-sized Photographs: Recent passport-sized photographs of all proposed directors and shareholders.
- Digital Signature Certificate (DSC) & Director Identification Number (DIN): For all proposed directors.
- LLP Agreement: A copy of the original and all supplementary LLP agreements.
- LLP Incorporation Certificate: Copy of the LLP's Certificate of Incorporation.
- Latest Financial Statements of LLP: Audited financial statements of the LLP for the previous year(s), duly certified.
- Latest Income Tax Return (ITR) of LLP: Copy of the last filed ITR.
- Consent of all Partners: A written consent from all partners of the LLP approving the conversion.
- No Objection Certificate (NOC) from Secured Creditors: If the LLP has any secured loans or liabilities, an NOC from all secured creditors is mandatory.
- Statement of Accounts: The accounts statement of the LLP, prepared 15 days before the date of application, is duly certified by a Chartered Accountant.
- Details of Pending Litigation (if any): Any ongoing legal proceedings by or against the LLP.
For the New Private Limited Company:
- Proof of Registered Office Address:
- If owned: Copy of electricity bill/gas bill/water bill (not older than 02 months) and property documents.
- If rented: Rent agreement/lease agreement and No Objection Certificate (NOC) from the landlord.
- Memorandum of Association (MoA) & Articles of Association (AoA): Drafted documents outlining the company's objectives, rules, and internal management.
- Declaration of Compliance: A declaration by the proposed directors confirming compliance with all legal requirements.
- Affidavits from Proposed Directors: Affirming their eligibility to act as directors and the correctness of information submitted.
The conversion of an LLP to a Private Limited Company is governed by Section 366 of the Companies Act, 2013, and the Companies (Authorised to Register) Rules, 2014. Praman Advisors manages the entire process meticulously:-
- Partner's Meeting and Resolution: Convene a meeting of all LLP partners to pass a resolution approving the conversion to a Private Limited Company. This resolution signifies unanimous consent.
- Advertisement in Newspapers (Form URC-2): Publish an advertisement in Form URC-2 in one English and one vernacular language newspaper circulating in the district where the LLP's registered office is located. This notice invites objections (if any) within 21 days from the date of publication. A copy of this notice is also sent to the Registrar of Companies (ROC).
- Name Approval Application: Apply for the reservation of the proposed Private Limited Company name with the Registrar of Companies (ROC) through the MCA portal (RUN form). The name should typically be the same as the LLP, with "LLP" replaced by "Private Limited."
- Drafting MoA and AoA: Once the name is approved, our experts will draft the Memorandum of Association (MoA) and Articles of Association (AoA) for the new company.
- Filing of Conversion Application (Form URC-1): File Form URC-1 with the ROC along with the required attachments, including the newspaper advertisements, consent of partners, NOC from secured creditors, financial statements and other declarations.
- Integrated Incorporation Form (SPICe+): Simultaneously with Form URC-1, the integrated incorporation form SPICe+ (Simplified Proforma for Incorporating Company Electronically) along with SPICe MOA, SPICe AOA and AGILE PRO (for GST, EPFO, ESIC registration) are filed.
- ROC Scrutiny and Issuance of Certificate of Incorporation: The Registrar of Companies reviews the application and submitted documents. Upon satisfaction, the Certificate of Incorporation for the new Private Limited Company is issued. The LLP is then deemed to be dissolved.
- Post-Conversion Formalities: We assist in updating existing registrations (like GST, PAN, TAN, bank accounts and other licenses) to reflect the new company's name and status. The inclusion of this is needed for filing Form INC-20A for commencement of business.
The fees for converting an LLP to a Private Limited Company comprise government fees (stamp duty, registration fees, name approval fees) and professional service charges. These charges vary based on factors like the authorized capital of the proposed company and the state of registration. Praman Advisors offers transparent and competitive pricing, providing a detailed cost breakdown during your initial consultation.
Please contact us for a personalized quote:-
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- Manju Laur: 📞 +97119 94042
Timeline: The conversion process typically takes 30 to 45 working days. This timeframe is dependent on:-
- The prompt submission of all required documents by the client.
- Government processing times, particularly for name approval and final incorporation by the Ministry of Corporate Affairs (MCA).
- The 21-day public notice period for objections.
Frequently Asked Questions
Yes, a unanimous resolution from all partners of the LLP is mandatory to approve the conversion to a Private Limited Company
Upon conversion, all assets, liabilities, undertakings and properties of the LLP automatically transfer to and vest in the new Private Limited Company. There is no need for separate transfer deeds.
Yes, a new bank account must be opened in the name of the Private Limited Company. The LLP's existing bank account should be closed and funds transferred to the new company's account.
No, the Private Limited Company will be issued a new PAN and TAN during the incorporation process. However, the existing GST registration can be amended to reflect the new entity's details.
A Private Limited Company requires a minimum of two directors and two shareholders. The existing partners of the LLP typically become the initial directors and shareholders of the new company.
Under Section 47(xiii) of the Income Tax Act, the conversion from an LLP to a Private Limited Company is generally exempt from capital gains tax, provided certain conditions are met (e.g. all LLP partners become shareholders in the same proportion and they hold at least 50% of the voting power for five years). We recommend consulting with a tax expert for specific advice.
The LLP should continue to operate normally until the Certificate of Incorporation for the Private Limited Company is issued. Once the conversion is complete, all operations will be carried out under the new company's name.
