Procedure for Conversion of Private Limited Company into LLP

Pursuant to Sec 56 of LLP Act along-with Schedule 3 deal with conversion of Private Limited to LLP

PRE-REQUISITES:

• 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.
• 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.
• Authorize any director to file all necessary forms with MCA.

Step 2: Application for Name Availability

• Apply for reservation of name in Form RUN-LLP and obtain name approval from ROC.

Step 3: Filing of Incorporation Form with Required Documents

• File e-Form FiLLiP with ROC along with the following attachments:
• Address proof of registered office of LLP.
• Subscription sheets.
• Consent to act as designated partners and partners.
• Identity and residence proofs of designated partners and partners.
• Details of LLP(s)/Company(s) where partners are directors or designated partners.

Step 4: Filing of Application for Conversion into LLP

File E-Form 18 with ROC along with following attachments:

• Statement of consent of shareholders (Mandatory).
• Statement of accounts certified by independent auditor.
• List of secured creditors along with their consent.
• Copy of acknowledgement of latest income tax return (Mandatory).

Step 5: Certificate of Incorporation as LLP from ROC

• ROC issues Certificate of Incorporation upon approval.

Step 6: Drafting of Limited Liability Partnership Agreement

1. Filing of E-Form 3

• File LLP Agreement within 30 days of conversion.
• Attachment required: LLP Agreement.

2. Filing of E-Form 14 (Intimation to ROC)

Form 14 must be filed within 15 days of conversion.

Attachments of E-Form 14

1. Copy of Certificate of Incorporation of LLP.
2. Copy of incorporation document filed in FiLLiP.

Pursuant to Income Tax Act

The Finance Act, 2010 inserted clause (xiiib) in Section 47 and sub-section (4) in Section 47A.

• If all conditions are complied with, conversion shall not attract capital gains tax.
• Non-compliance will attract capital gains tax under Section 47A(4).

Benefits under Income Tax Act

• No Dividend Distribution Tax.
• No MAT liability.
• Deduction for partner remuneration and interest.

Detail Provisions

The Finance Act, 2009 taxed LLPs like partnership firms but was unclear on conversion issues.

• Capital gains on asset transfer.
• Carry forward of losses.
• MAT credit availability.

The Finance Bill, 2010 clarified these issues effective AY 2011–12.

FAQs — Conversion of Private Limited Company into LLP

1. Can any private limited company convert into an LLP?
Yes. A private limited company can convert into an LLP only if certain conditions are met, including:

• No security interest/charge on its assets at the time of application.
• All shareholders become partners of the LLP (no outsiders).
• The company has no prosecution pending under the Companies Act.
• All due statutory returns (ROC, income tax) have been filed.
• Minimum two shareholders/designated partners are available.

2. What statutory conditions must be satisfied before conversion?
Before conversion, the company must ensure:

• Consent of all shareholders and secured creditors.
• Latest income-tax return filed with ROC.
• Statement of assets & liabilities certified by an auditor (recent).
• There should be no open/unsatisfied charges on company assets.
• The company should not be a Section 8 company (non-profit).

3. What are the main steps in the conversion process?
The broad procedural steps are:

• Board meeting — Pass resolutions for conversion and authorize filing.
• Name reservation — Reserve LLP name via RUN-LLP or Form FiLLiP.
• Obtain DIN/DSC — Digital signatures and DIN for designated partners.
• File Form FiLLiP + Form 18 — Incorporation & conversion application to ROC.
• ROC scrutiny — Registrar reviews and approves the application.
• Certificate of Incorporation (LLP) — Issued on successful conversion.
• File Form 3 — LLP agreement within 30 days of incorporation.
• Intimate ROC — File Form 14 within 15 days of conversion.

4. What forms are filed with ROC during the conversion?
Important MCA forms involved include:

• FiLLiP (Form 2) — Application for incorporation of LLP along with conversion details.
• Form 18 — Application for conversion of a company into LLP with statutory attachments.
• Form 3 — LLP Agreement (within 30 days of conversion).
• Form 14 — Intimation of conversion to ROC (within 15 days).

5. Does conversion attract income-tax on transfer of assets?
No. Conversion of a private limited company into an LLP is generally tax-neutral (not treated as a “transfer” under the Income-Tax Act), provided conditions like identical partners, same capital/profit sharing ratios, and no additional benefits beyond contribution and profit are met. Also, business turnover and asset limits must be within prescribed thresholds (e.g., ≤ ₹60 lakh turnover and ≤ ₹5 crore assets in past 3 years).

6. What documents are usually required for conversion?
Key documents typically include:

• Board & shareholders resolutions for conversion.
• Audited financial statements and statement of assets & liabilities.
• Consent letters from shareholders and secured creditors.
• Latest ITR acknowledgment of the company.
• Proof of registered office and identity/address proofs of partners.

7. Who becomes partners after conversion?
All existing shareholders of the company must become partners of the LLP. They will hold capital contributions and share profits in the LLP, usually in proportion to their shareholding in the company. No other person can be admitted as partner at the time of conversion.

8. What happens after conversion?
Once the ROC issues the Certificate of Incorporation for the LLP:

• The company ceases to exist and is deemed dissolved.
• All assets, liabilities, contracts and obligations automatically vest in the LLP.
• LLP must update registrations (e.g., PAN, TAN, GST, bank accounts) and execute the LLP Agreement.

9. Is there any compliance requirement immediately after conversion?
Yes. The LLP must:

• File the LLP agreement (Form 3) within 30 days.
• Intimate the earlier ROC about the conversion (Form 14) within 15 days.
• For 12 months, mention “converted from [Company Name]” in official documents (in some cases).

10. What if ROC refuses the conversion application?
If the Registrar refuses conversion, the company can appeal to the National Company Law Tribunal (NCLT) within the prescribed period with supporting grounds.

11. Can the LLP admit new partners after conversion?
Yes. After incorporation as an LLP, the firm can admit new partners in accordance with the LLP agreement and applicable LLP Act provisions, subject to partner consent and contribution rules.

12. Does conversion affect existing contracts or legal proceedings?
No. Existing contracts, appointments, licenses, and ongoing legal/tribunal proceedings continue in the name of the LLP after conversion without needing fresh agreements unless required by specific terms.