Conversion of Company into LLP
Conversion of Company in LLP
Limited Liability Partnership (LLP) was introduced in India through the LLP Act, 2008 to help entrepreneurs enjoy benefits similar to that of a Private Limited Company while being easy to maintain. Many LLPs have since been incorporated and LLP as a business entity has been well adopted by the Indian business community. In this article we look at the process and procedure for conversion of a company into a LLP:
Overview and Requirements
Though LLPs are easier to maintain, LLPs also do not offer same benefits a Company offers. Therefore, only a few companies are converted into LLP – to avail the benefit of lower compliance requirement associated with a LLP. The procedure for conversion of company into LLP is covered in the third schedule to the LLP Act.
A private limited company will be eligible to convert into a LLP only if all the shareholders of the company agree to become a Partner of the proposed LLP and there exists no charge over any of the assets of the Private Limited Company. Once the above conditions are met, the company can apply to the Registrar for conversion into a LLP.
Procedure for Conversion of Company into LLP
Prior to starting the process for conversion, Digital Signature Certificate (DSC) and Director Identification Number (DIN) must be obtained for all the shareholder of the Company. In a Private Limited Company, usually those appointed as Directors have DIN; shareholders are not required to have DIN. So once DIN is obtained for all the shareholders, to convert a company into LLP, Form 18 for conversion of company into LLP must be filed with the Registrar along with the prescribed documents. Some of the document or information required during the incorporation process could include
- Consent of each of the shareholder for conversion of company into LLP
- Incorporation Documents
- No objection certificate from tax authorities
- Financial statements of the company
- List of creditors and their consent for conversion of company into LLP
If the Registrar is satisfied with the application, the Registrar shall issue a certificate of incorporation of LLP. On conversion of the company into LLP, the private limited company is deemed to be dissolved. All the properties, assets, liabilities, interests, rights and privileges of the Private Limited Company is considered to be transferred to the LLP.
Transfer of License and Property
On conversion of Company into LLP, many of the licenses, approvals and permits in the name of the company are not automatically transferred to the LLP. Therefore, prior to starting the process for conversion, it is important for the Entrepreneur to consider the impact of the conversion process on existing licenses and registrations with the concerned department.
Also, Property in the name of the company prior to the transfer will not automatically be transferred to the LLP. It is again the Entrepreneurs responsibility to followup with the concerned authorities to effect the transfer of property from company to LLP. Considering the above disadvantages, it is not recommended to convert a company into a LLP, unless required and only after a thorough due-diligence.
