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Conversion Of LLP To Company
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Conversion Of LLP To Company
Conversion of LLP to Private Company
There are businesses in India that begin their journey as a Limited Liability Partnership (LLP), but now are keen on converting into a private limited company for more growth and prosperity in business. The provision mentioned in Section 366 of the Companies Act, 2013 and Company (Authorised to Register) Rules, 2014, says that an LLP can be converted into a Private Limited Company.
Before you step into the business of Private Limited Company, there are several requirements which you may need to fulfil for converting an LLP into a Private Limited Company, for instance, it is necessary for an LLP to have seven partners and approval from all partners is must need. An advertisement is published in both local and national newspaper, No Objection Certificate (NOC) is obtained from the ROC where LLP is registered and then all the incorporation process begins.
Choice of LLP vs Private Limited Company
LLP is majorly suitable for small businesses that have an annual sales turnover of fewer than Rs 40 lakhs and a capital contribution of fewer than Rs 25 lakhs. LLPs that satisfy these conditions do not have to go through the audit every year, on the other hand, it is necessary for a private limited company to conduct an audit of its financial statement each year. Though in case, LLP has an annual turnover of Rs 40 lakhs or a capital contribution of more than 25 lakhs, the need for compliance becomes almost similar for both the private limited company and LLP, forcing the owners of LLP to convert into a Private Limited Company.
Corporatization has become the need of the current market situation. We live in a world where the ulterior goal of every market is to drift towards one global market removing the barriers between the countries. There are many start-ups and entrepreneurs who are eager to step into corporatization.
Follow the below-mentioned steps to initiate the process:
Step 1: Incorporation of a New Corporate Entity
Step 2: Conversation of Existing into a Company, such as Converting LLP into a Private Limited Company
Reasons for LLP Registration
- Making small businesses aware of the concept of LLP.
- Easy to commence and control
- Gives the advantage of limited liability and also provides flexibility to organize their firm internally.
- The audit is not needed if an annual sale is more than Rs 40 lakhs and capital, contribution does not cross the limit of Rs 25 lakhs.
- LLP is not bound to pay Dividend Distribution Tax (DDT).
- It is not necessary for an LLP to conduct Board meeting or annual meeting.
- The registration process of LLP is simple as compared to Private Limited Company.
Reasons for Private Limited Company Registration
- LLP does not entertain the concept of shareholders. All the owners in an LLP are considered as Partners in the LLP and are considered as unsuitable for investors such as Venture Capitalists and Private Equity investors who do not possess any desire to indulge in the management of the Company. A Private Company is the best choice for investors. If the business is growing, then the owners must convert it into a private limited company.
- FDI is becoming popular in the Indian market. A private limited company does not require any approval from the government authorities for FDI while government approval is much needed for FDI in LLP.
Process of Conversion of LLP into a Private Limited Company
Let’s dig in further and discuss each process in detail.
- Name Approval
- Securing DSC and DIN
- Filing of Form URC-1
- Memorandum of Association and Article of Association
Documents Required for Conversion of LLP into a Private Limited Company
- Address Proof of the applicant
- Identity Proof of the applicant
- Passport size photograph of the applicant
Documents required at the time of filing of Form URC-1
- Details such as name, address, and shares held by the members along with the member’s list.
- Furnish the details such as Name, Address, DIN, passport number along with an expiry date of all the directors of the Private Limited Company.
- Also, file all mandatory documents with the Registrar of Companies for the registration of the company
- Copy of Limited Liability Partnership agreement with a list attached mentioning the name and address of the partners of LLP and a certified copy of the registration which is duly verified by at least two designated partners of LPP is required.
- The statement with the details of the nominal share capital of the firm and the number of shares separated the number of shares taken and the amount remitted for each share and the name of the firm with the word private limited to be provided.
- No-objection certificate from all the creditors has to be provided.
- Duly certified accounts statement of the company by the auditor, which should not be less than six days from the date of application and the copy of the newspaper advertisement is required.
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