The concept of Limited Liability Partnership Firm Registration came into existence in the year of 2008 through the Limited Liability Partnership Act. This is a modernized version of partnership firms which have all the qualities like a corporate body. It has a lot of benefits and exemptions due to which it is popular among the entrepreneurs. If you are an entrepreneur and running your business as a Private Limited Company, and you want to convert your Pvt Ltd Company into an LLP, you can do so. Although it’s not easy to convert your Pvt Ltd Company into an LLP, you can do so with the help of a professional. Make sure that the professional you are hiring for this work must have experience in the same field. To know more about the concept of changing a Private Limited Company into a LLP continue reading this blog till it’s like a line.
Two Types of Most Preferred Business Among the Entrepreneurs
Mainly there are two types of entities which are popular among the entrepreneurs, these two entities are given below:
Limited Liability Partnership Firm
The Limited Liability Partnership (LLP) Act of 2008 introduced LLPs, which are a type of company structure formed by two or more partners. It’s a modern approach to partnership firms, combining elements of businesses and partnerships. The Ministry of Corporate Affairs facilitates the online process of LLP formation. LLPs offer partners independent legal liabilities, separating them from the firm’s obligations. The LLP’s liability differs from that of its partners. Businesses with two or more partners prefer LLPs due to their advanced operations and flexibility across locations.
Private Limited Company
A Private Limited Company, created under company law, is a distinct legal entity with perpetual succession and a common seal. Governed by the Companies Act of 2013, these companies require a minimum of two directors for incorporation through the Ministry of Corporate Affairs. They possess independent legal personalities, distinguishing directors from the company itself. As artificial legal persons, Private Limited Companies have limited liability for their members and enjoy perpetual succession as corporate bodies. Similar to humans in legal personality, they can be dissolved voluntarily or through tribunal-ordered winding up, blending traditional and contemporary methods in their governance.
Prerequisites to Convert your Pvt Ltd Company into an LLP
In order to convert your Pvt Ltd Company into an LLP, you need to fulfill some prerequisites, which are mentioned below:
- Obtain approval from the Board of Directors for the conversion.
- Ensure that the decision aligns with the company’s goals and objectives.
- Seek approval from shareholders through a special resolution.
- Inform shareholders about the reasons and benefits of the conversion.
- File an application to reserve the proposed name for the LLP.
- Choose a name that complies with LLP naming rules.
- File Form URC-1 with the Ministry of Corporate Affairs (MCA) for approval.
- Adhere to the regulatory requirements outlined by the MCA.
- Address any potential disruptions to avoid negative impacts.
- Communicate the change transparently to stakeholders and customers.
- Draft and file the LLP Agreement as per the LLP Act.
- Adapt the LLP structure to suit specific business needs.
- Seek professional assistance from legal and financial experts.
- Ensure compliance with legal requirements and receive expert advice.
Benefits of Converting a Pvt Ltd Company into LLP
Due to the following benefits of converting your Private Limited Company into LLP you should convert it:
- Enjoy reduced compliance requirements compared to a Private Limited Company.
- Experience flexibility in meeting regulatory obligations.
- Benefit from greater flexibility in management and decision-making.
- LLPs have fewer regulatory formalities, providing ease of operation.
- Partners enjoy limited liability, protecting personal assets.
- Minimize personal risk compared to a Private Limited Company.
- Ensure a smooth transition in business operations during and after the conversion.
- Retain brand continuity and reputation during the conversion.
- Experience cost efficiency with reduced compliance and operational costs.
- Optimize resources for improved financial performance.
- Enjoy flexibility in structuring agreements among partners.
- Align the conversion with the evolving goals of the business.
Eligibility to Convert your Pvt Ltd Company into an LLP
If you want to convert your Pvt Ltd Company into an LLP, you must fall in the given below eligibility criteria:
- Ensure that the Private Limited Company is actively conducting business operations.
- A company with ongoing business activities is eligible for conversion.
- Confirm that the Private Limited Company has no pending defaults in statutory filings.
- Resolve any outstanding compliance issues before initiating the conversion process.
- Shareholders’ agreement to the conversion is a key eligibility factor.
- Ensure that creditors are informed and have no objections to the conversion.
- Maintain financial solvency to meet liabilities during and after the conversion.
- Adequate financial stability is crucial for a smooth transition.
- Confirm the absence of any pending or impending litigation against the company.
- Resolve legal matters before proceeding with the conversion.
- Ensure that the chosen name complies with LLP naming guidelines.
- Identify and appoint at least two designated partners for the LLP.
- Obtain necessary approvals from regulatory authorities for the conversion.
- Regulatory clearance is a crucial step in the eligibility process.
List of Companies That Cannot be Converted into LLP
Some of the companies which cannot be converted from Private Limited Company to LLP are:
- Companies listed on stock exchanges cannot undergo conversion into a Limited Liability Partnership (LLP).
- Companies involved in financial services, including banking and insurance, are ineligible for conversion.
- Companies with pending or incomplete compliance, unresolved legal issues, or litigations cannot convert.
- Companies not complying with regulatory authorities or having unresolved regulatory matters are excluded.
- Companies with liabilities surpassing their assets are not eligible for conversion into an LLP.
- Companies undergoing investigation or facing legal proceedings cannot opt for LLP conversion.
- Companies with outstanding default filings or dues must rectify these issues before considering conversion.
- Companies having a foreign subsidiary in the structure are ineligible for LLP conversion.
- Companies unable to obtain creditor approval for conversion are not allowed to convert.
- Companies with a negative net worth, indicating financial instability, cannot undergo LLP conversion.
- Companies not complying with LLP naming guidelines are ineligible for conversion.
- Companies failing to meet statutory requirements and conditions specified by regulatory authorities are excluded.
Procedure to Convert your Pvt Ltd Company into an LLP
Given below is the step-by-step procedure to convert your Pvt Ltd Company into an LLP:
- File an application with the RoC that is the Registrar of Companies for reserving the proposed name for LLP.
- Obtain a No Objection Certificate (NOC) from creditors, debenture holders, and other stakeholders.
- Draft a Limited Liability Partnership (LLP) agreement defining the roles, responsibilities, and profit-sharing ratio among partners.
- File conversion documents, including LLP agreement, with the RoC along with the prescribed forms.
- Upon verification and approval, the RoC issues a Certificate of Incorporation for the LLP.
- Transfer the assets and liabilities of the private limited company to the LLP as per the agreed terms.
- After completion of the process, apply for the cancellation of the Certificate of Incorporation of the private limited company.
- Intimate concerned authorities, such as the income tax department, about the conversion for necessary updates.
- Update business stationery, bank accounts, and other documents reflecting the new LLP structure.
- Publish a public notice about the conversion in a newspaper circulated in the district where the registered office is situated.
Documents Required to Convert your Pvt Ltd Company into an LLP
Some of the key documents required to convert your Pvt Ltd Company into an LLP are given below:
- Board Resolution
- Shareholder Approval
- NOC from Creditors
- LLP Agreement
- Statement of Assets and Liabilities
- Consent of Partners
- Statement of Share Capital
- Declaration of Solvency
- Auditor’s Certificate
- Consent of Designated Partners
- Approval from Regulatory Authority
- Certificate of Incorporation of LLP
- Assets and Liabilities Transfer Deed
Conclusion
In order to convert your Pvt Ltd Company into an LLP, you need to follow a systematic process. Initially, obtain approval from the Board of Directors and shareholders through a special resolution. Fulfill prerequisites such as reserving a unique name for the LLP, seeking NOCs, and drafting the LLP agreement. File necessary forms with the RoC that is the Registrar of Companies, ensuring compliance with regulatory requirements. Enjoy benefits like reduced compliance and operational costs, increased management flexibility, and limited liability for partners. Eligibility criteria include active business operations, shareholder agreement, and financial stability. In short there are a lot of formalities included in the process to convert your Pvt Ltd Company into an LLP. Also there is no place of mistake while performing the process. Hence you should hire an expert who can make your work hassle-free.
