Comprehensive Guide to Converting an LLP to a Private Limited Company: Process, Conditions, and Tax Implications

Conditions for Conversion of LLP to Private Limited Company

1. Minimum Partners: The LLP must have at least 2 partners who will become directors and shareholders in the private limited company.

2. Partner Approval: All the partners of the LLP must approve the conversion to a private limited company.

3. Statutory Compliance: The LLP must be compliant with all statutory obligations before initiating the conversion process.

4. Public Notice: The conversion must be published in at least 2 newspapers—one in English and one in the vernacular language of the district where the LLP is located.

5. No Objection Certificate (NOC): Obtain a NOC from the Registrar of Companies (ROC) before proceeding with the conversion.

Process of Conversion from LLP to Private Limited Company

1. Name Approval:

   • Reserve Unique Name (RUN): Submit the RUN form electronically to the ROC to obtain approval for the company name.

2. Obtain DIN & DSC:

   • Ensure that all proposed directors have a Director Identification Number (DIN) and Digital Signature Certificate (DSC).

3. Filing of Forms:

   • Form URC-1: Include details like the address, name, and shares held by each member, along with the member’s list.
   • SPICE+ Form: Provide necessary details including the address, DIN number, and passport number (with expiry date) of all directors.
   • Affidavit from First Directors: State that the LLP members are not disqualified from being directors.
   • Mandatory Documents: File all required documents with the ROC for company registration, including:
     • A copy of the LLP agreement.
     • A list of partners with addresses and certified copies of the registration.
     • A statement with details of the nominal share capital, shares taken, and the amount remitted.
     • A no-objection certificate from all creditors.
     • A certified account statement of the company.

4. Drafting and Submission of AOA & MOA:

   • Draft the Articles of Association (AOA) and Memorandum of Association (MOA) for the new private limited company.
   • Submit these documents to the ROC along with the approval for the company name.
   • Upon approval, Form URC-1 is sanctioned by the ROC.

Capital Gains Tax Exemption Conditions

1. Transfer of Assets and Liabilities: All assets and liabilities of the LLP before conversion must be transferred to the private limited company.

2. Partners to Shareholders: All partners of the LLP before the conversion must become shareholders in the new company, holding shares in proportion to their capital accounts on the conversion date.

3. No Additional Consideration: The partners must not receive any benefit or consideration other than the allotment of shares in the company.

4. Shareholding Continuity: The aggregate shareholding of the LLP partners in the private limited company must be at least 51% of the total voting power. This shareholding must continue for at least 5 years post-conversion.

*Important Notes*

• Ensure that all conditions and procedures are followed meticulously to avoid any legal complications or delays.
• Consulting a legal or financial expert throughout the process can be beneficial to ensure compliance and smooth transition.

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Article Compiled by:-

~Neel Lakhtariya

(LegalMantra.net Team)

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.