How to Convert LLP into Private Limited Company

Most of the Entrepreneurs in India while Choose LLP then then they are confuse that How to Convert LLP into Private Limited Company or Conversion of the LLP into Private limited company possible or not. So Let’s learn about conversion of the LLP into the private limited company as per companies act 2013.

How to Convert LLP into Private Limited Company

Introduction about How to Convert LLP into Private Limited Company in India

The Limited Liability Partnership (LLP) is formed the  LLP Act, 2008. LLP Registration is usually popular among the start ups and the Entrepreneurial ventures. It is to be noted that since the stamp duty is a state prerogative, the conversion fee applicable concerning the stamp duty will be prescribed by each state respectively. Additionally, it has been provided in the Act that on conversion of a firm/private company/unlisted public company into LLP, any approval, permit or licence issued to the firm/private company/unlisted company under any other Act shall, subject to the provisions of such other Act under which such approval, permit or licence was issued, be transferred in the name of converted LLP.

Conversion of LLP into Private Limited Company

According to the  Ministry of Corporate Affairs,

“Conversion of LLP into private limited company would not be allowed under LLP Act. However, enabling provisions would be required to be made in the Companies Act for such conversion. Necessary action in this regard would be taken when Companies Act would be revised.”

Further, As per Companies Act, 2013,

“COMPANIES CAPABLE OF BEING REGISTERED (SECTION 366):
For the purpose of this Part the “company” includes any partnership firm, limited liability partnership, cooperative society, society or any other business entity formed under any other law for the time being in force which applied for registration under this Part.”

The LLP Act, 2008 does not provide any facility for conversion of a LLP into a private limited company. LLP is mentioned among companies that are capable of being registered as a Company under the Companies Act, 2013. However, no rules have so far been issued by the Ministry of Corporate Affairs establishing the procedure for conversion of LLP into Private Limited Company. Therefore, at present an LLP cannot be converted into a private limited company.

Reasons for Choose LLP Registration

The following are reasons some small businesses choose to do an LLP registration:

  • Audit is not required for a LLP annual sales turnover is less than Rs.40 lakhs and the LLP has a capital contribution of less than Rs.25 lakhs. Whereas, for a Private Limited Company, audit is mandatory irrespective of sales turnover or capital.
  • There is no dividend distribution tax applicable for LLPs. Whereas, for a Private Limited Company, dividends are taxed at the rate of 15%.
  • In LLP, there is no concept of Board Meetings or Annual General Meetings. So annual compliances are relatively fewer.
  • The fee for incorporation of LLP is lower than the government fee for incorporation of private limited company.
  • The process for incorporation of LLP also involves less documents and is less cumbersome.

Reason for Choose Private Limited Company Registration

  • LLPs do not have the concept of shareholding. Venture Capitalists and Private Equity Investors –who do not wish to actively participate in the management of the Company do not approve this kind of arrangement. Hence, equity investors will only invest in a Private Limited Company.
  • Foreign Direct Investment (FDI) in a private limited company is under the automatic route whereas FDI in LLP is under the approval route. Therefore, foreign or NRI promoters prefer incorporation of a private limited company mostly.

Conclusion about Convert LLP into Private Limited Company 

LLP is the Choose by the startups when they just need limited liablity in the business and want to save the annual expense , audit expenses and incorporation charges. They do’nt want to raise the funds from Angel Investor or Venture Capital firms in the starting. because there are many  ways to raise money for the startups in India.

Private Limited Company is choose over LLP by the startup when they want need funding from investor or already in process with the seed funding. even on later stage these days startup also offer shares to employees which is only possible in the case of Private limited company.

So Conclusion is Conversion of the LLP into the Private limited company is not practical on this stage so solution is if on the later stage startups need private limited company then they can incorporate a new private limited company & takeover the business of the llp.

Hope this Article helpful for you regarding the conversion of LLP into the Private Limited Company in India as per companies Act.