Introduction

  • In terms of Conversion of LLP, there is a requirement that shall be fulfilled such as important documents and forms.
  • One of the notifications of the Ministry of Corporate Affairs in the year 2016 gave a green signal to the conversion of the Limited Liability Partnership into the Company.
  • The essential documents and forms are filed with ROC are URC-1, INC-32, INC-33, and INC-34.
  • In another context, for conversion, one should also keep in mind the implications and provisions of Income Tax as well as Capital Gain.
  • This article will include all the necessary provisions and aspects of the Companies Act, 2013 required for the conversion from LLP to Company.

Framework

  • As the world is moving towards Corporatization, it is building the entire world into one global market by eliminating trade barriers and restrictions for trading between nations.
  • With this emergence in Corporate culture and promotional initiatives taken by the Government, immensely talented entrepreneurs are looking forward to discovering new opportunities in the Corporate Sector most probably in two ways that are:
  • Incorporation and Registration of new Corporate entity or
  • Converting the existing business or entity into the Company
  • In the second case of converting an existing entity i.e., Limited Liability Partnership (LLP) into a corporate entity such as a Private Limited Company might be considered as a good decision to switch from one entity to another.
  • Although, the procedure of conversion is a step-by-step process and flexible with technical applicability that shall be done and handled by a diligent person for time-saving and cost-effectiveness.
  • Previously, there was no provision regarding the same under the Companies Act, 2013 but keeping in view of the need for the provision the Ministry of Corporate Affairs in the year 2016 passed a notification for allowing the conversion of LLP into a Company.

The above mentioned rules were called as ‘the Companies authorized to register Amendment rules, 2016.

Benefits of Conversion of Limited Liability Partnership into Company

  • On conversion, there is no capital gain as it is not a transfer.
  • The Gujarat High Court in one of its Judgment held that conversion of the LLP into a Company shall not be subject to capital gain tax because it is a conversion and shall be not construed as transfer.

Procedure for Conversion

  • The most essential condition for the conversion is that there shall be seven or more partners in the existing partnership firm at the time of conversion.
  • However, in the 2016 amendment of the Companies Act, 2013, the Ministry of Corporate Affairs had reduced the limit to two partners.
  • The first prerequisite for the conversion is to invite a meeting by summoning all the members of the firm and give their consent for the registration of the LLP under Section 366 of the Companies Act, 2013.
  • The majority of the members are very necessary for taking up the decision. The meeting shall also decide 1-2 members to complete all the formalities and execution of all the required documents, paper, deeds and etc in reference to the registration of the LLP as a Company.
  • Another step is to apply for the availability of the name for LLP as it is also one of the benefits that the business can function with the same name as that of LLP that shall be subject to availability of name as per Name Availability provisions of Companies Act.
  • In addition after registration of the LLP, the words like ‘Limited’ or ‘Private Limited’ have to be also added.
  • On seeking the name approval, the below mentioned forms shall be filed with the prescribed and essential documents with the Registrar of Companies within twenty days from the name approval.

Required Documents for filing with Registrar of Companies for further procedure

URC-1 (E-form)

  • This form shall be filled by the Company along with the following document:
  • The details displaying the Name, Address, and occupations of all the members named as a part of the Company.
  • Another detail mentioning the format of particular of persons proposed by the majority as first Directors of the Company.
  • Also, an affidavit from each of the members proposed as a first Directors and highlighting provisions of Section 164(1) that he/she is not disqualified to be a Director of the Company supported with all the essential documents and declaring that all the information filed with the Registrar of Company is true and correct and best of his/her knowledge and belief.

A duly certified copy of  LLP Agreement

  • A financial statement of assets and liabilities of the LLP duly certified and verified by a Chartered Accountant in practice on a date not earlier than 30 days of the filing of form URC-1.
  • A latest Income Tax Return copy of the Limited Liability Partnership
  • An undertaking by the Directors that he/she shall comply with all the requirements of the Indian Stamp Act, 1899.
  • No Objection Certificate (NOC) from all the creditors of the applicant Company.
  • A written document duly signed by all the majority of the members who gave their consent.
  • A description mentioning the following details:
  • The nominal share capital of the new Company and the number of shares into which it is divided.
  • The new name of the Company after addition of the word ‘Limited’ or ‘Private Limited’ as required in any case thereof

INC-32, INC-33, INC-34 (E-form)

  • Another important form required by the Company to file are INC-32, INC-33, INC-34 along with URC-1 as a linked form with all the attachment as prescribed by the Government like;
  • Memorandum of Association and Article of Association that might be physical in the case where more than seven subscribers otherwise INC-33 and INC-34 shall be enough. 
  • INC-9 is also required.

Conclusion

There might be several ways of converting a firm to a Company or admitting a new Company as a partner but the conversion should be made in an appropriate manner to avoid any misappropriation in the future.

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