Converting an LLP to a Private Limited Company

 

Before converting an LLP to a Private Limited Company, you must know the difference between LLP and Pvt Ltd.

 

Under the LLP Act of 2008, a limited liability partnership a relatively new type of corporate structure was created. 

 

In India, LLP registrations started in 2010. According to statistics, the number of LLP registrations surged by more than 55% in the fiscal year 2014–15, whiles the number of registrations for private limited companies fell.

 

 

 

Although starting a business as an LLP is a low-risk option, establishing a private limited company will ultimately be more advantageous, especially if you intend to grow your firm and attract investors. 

 

Due to the expansion of their enterprises and the benefits of converting to a private limited company, many businesses and companies incorporated under the LLP Act are now doing so.

 

According to Section 366 of the 2013 Companies Act and the 2014 Companies Rules, an LLP may become a private limited company.

 

Converting a Limited Liability Partnership into a Private Limited Company

 

The conversion of an LLP to a private limited company is subject to a number of conditions and regulations. These are listed below:

 

• There must be at least two partners in the LLP.
• The conversion of the company or firm requires the consent of all partners.
• Newspaper ads must be placed in regional and national publications.
• A certificate of no objection must be provided by the RoC where the LLP is registered (NOC).
• The application must be submitted on the Ministry of Corporate Affairs website in order to receive the DIN (MCA).
• The MCA processes the application and further approves it (Ministry of Corporate Affairs).
• Every document must be supplied in accordance with the specifications.

 

Filing Form No. URC-1:

Once the name has been approved by the Registrar of Companies, Form No. URC-1 must be filed along with the accompanying supporting documentation:

 

• Each member's information, including address, name, DIN, passport number, etc.
• The list of the company's first directors, together with their names and contact information
• A declaration signed by each of the First Directors that they are not prohibited from serving as directors by Section 164. Each document submitted must be accurate, full, and contain only real facts.
• List of all the partners in the LLP, along with a copy of the LLP and their addresses
• A declaration that suggests the following:
• The number of firm shares and the ratio in which they are distributed
• The number of shares purchased and the value associated with each share
• It is required to provide the company name and the prefix limited or Pvt. Ltd.
• A letter of approval from each creditor
• Copy of the newspaper ad and the company's statement of accounts.

 

Memorandum of Association and Articles of Association

The Memorandum of Association (MoA) and Articles of Association (AoA) must be drafted once the RoC has approved the name and approved Form-1.

 

The Liability Limited Partnership can become a Private Limited Company if all the aforementioned stages have been taken.

 

Which is BETTER? Private Limited Company or LLP?

When a company's yearly revenue is less than 40 lakh rupees and its capital contribution is less than 25 lakh rupees, an LLP is the best alternative.

 

If an LLP meets these requirements, there is no need for annual audits. Contrarily, regardless of the company's annual revenue, an audit of the financial accounts must be presented in the case of private limited firms.

 

As a result, the LLP has an advantage over private limited companies when it comes to small and developing firms. 

 

However, if the annual revenue exceeds 40 lakhs, Pvt. LLPs are a no-no for huge corporations involved in long-term growth because they do not draw venture capitalists and investors, making them preferable and superior.

 

Reason for Converting an LLP to a Private Limited Company

The reasons for converting an LLP into a Private Limited Company Registration Online are as follows:

 

• LLP changes its legal status to a private corporation in order to expand its current operations.
• LLP can only draw a limited variety of investors, thus they convert in order to draw more, such as international or equity investors.
• For the purpose of issuing equity share capital in the private limited Company, the LLP is converted.
• To avoid a capital gains tax gain is one of the conversion's justifications.
• to carry forward the entire year's worth of unrecovered losses and depreciation.
• The LLP decides to transform into a Company in order to maintain its brand name and goodwill.

 

Advantages of Changing from an LLP to a Private Limited Company

• The conversion of an LLP into a Private Limited Company enables commercial firms to maintain their brand identity without investing additional resources in brand promotion.
• Any foreign investor (organisation or person) may directly invest in the Company as a Private Limited Company in that country because 100% Foreign Direct Investment (FDI) is permitted.
• Since the losses and depreciation suffered in the LLP will be carried forward on the conversion of the firm, there won't be any costs associated with bookkeeping after the conversion.
• Companies are able to provide stock ownership and ESOP programmes thanks to the conversion of LLP to Private companies. These programmes aid businesses in luring skilled workers by offering them incentive packages to join the company.
• Only venture capitalists or angel investors can provide capital for a Private Limited Company or Public Company, and if the registration process is rigorous, among other things, it enhances the credibility of the corporate structure. This makes raising money from other sources simple.
• The obligation of the owners is restricted to the capital they subscribed to but did not pay for.
• In a private limited corporation, capital gains are not subject to tax.
• The Private Limited Company has been substituted by the existing LLP by appending "Pvt. Ltd." to the end of its name.