The Conversion of LLP to Private Limited Company is a strategic decision for businesses aiming for rapid expansion, access to equity funding and enhanced credibility. While an LLP (Limited Liability Partnership) offers flexibility and tax advantages, it is often limited in terms of raising capital.
A Private Limited Company (PLC), on the other hand, provides numerous advantages such as limited liability for shareholders, easier access to external funding and enhanced growth opportunities.
This article provides a comprehensive guide on the Conversion of LLP to Private Limited Company, explaining the legal steps, documentation and regulatory compliances involved.
Legal Framework for Conversion of LLP to Private Limited Company
The Conversion of LLP to Private Limited Company in India is governed by several laws and regulations. The most important statutes include the Companies Act, 2013, and the Limited Liability Partnership Act, 2008. The Ministry of Corporate Affairs (MCA) facilitates this conversion under Section 366 of the Companies Act, which allows LLPs to convert into Private Limited Companies, provided specific conditions are met.
Eligibility Criteria for Conversion of LLP to Private Limited Company
The Conversion of LLP to Private Limited Company is governed by Section 366 of the Companies Act, 2013, and the Companies (Authorised to Register) Rules, 2014. To proceed with this conversion, the following criteria must be satisfied:
- Minimum Partners: The LLP must have a minimum of two partners to convert into a Private Limited Company.
The LLP must first seek approval from all partners to initiate the conversion process. Furthermore, it should have a minimum of two shareholders and two directors, with one director being a resident of India, as required under the Companies Act, 2013.
- No Unresolved Liabilities: The LLP should not have any outstanding unsecured debts or must obtain written consent from creditors. The financial records of the LLP should also be in compliance with statutory audit requirements to avoid any complications during the conversion process.
- Approval of Name: The proposed name for the Private Limited Company must be approved by the Registrar of Companies (RoC). A name reservation is mandatory before proceeding with the conversion.
- Compliance with Financial Reporting: The LLP must submit its latest audited financial statements. These accounts should not be older than six days from the date of submission to the Registrar of Companies.
Steps Involved in the Conversion of LLP to Private Limited Company
The process of Conversion of LLP to Private Limited Company involves several legal steps and compliance with various statutory regulations. Below is a step-by-step guide outlining the procedure:
- Obtain Partner Consent: The first step is to pass a special resolution in a meeting of the LLP's partners, agreeing to the conversion. The resolution must be filed with the Registrar of Companies (RoC) within 30 days of passing the resolution.
- Name Approval from RoC: The proposed name of the Private Limited Company must be approved by the RoC through the submission of e-Form INC-1. The approved name is valid for 60 days, during which the company must complete its incorporation process.
- Filing of Form URC-1: After obtaining the name approval, the LLP must file Form URC-1 with the RoC. This form contains the details of the partners, the financdial position of the LLP, the names of the proposed directors, and a declaration of compliance with relevant laws.
- Preparation of Constitutional Documents: The draft Memorandum of Association (MOA) and Articles of Association (AOA) must be prepared, outlining the objectives of the new company and the rules governing its operations. These documents must be filed with the RoC.
- Submission of No-Objection Certificates: No-objection certificates (NOCs) from all secured creditors of the LLP must be submitted, confirming that they have no objections to the conversion.
- Incorporation Forms: Forms INC-32 (SPICe), INC-33, and INC-34 are required to be filed with the RoC for the incorporation of the new Private Limited Company. These forms include information regarding the company's structure, directors, and registered office.
- Issuance of Certificate of Incorporation: After verifying the submitted documents, the RoC issues a Certificate of Incorporation. This certificate legally recognizes the conversion of the LLP into a Private Limited Company.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
