Limited liability partnerships are popular because they are a mixture of corporations and partnerships and offer multiple benefits. An LLP offers the benefits of a legal entity and the flexibility of a partnership. This article explains the concept of conversion of private company into LLP.
A limited liability partnership is a legal entity in which the liability of the partner is limited. LLPs can enter into contracts and hold real estate in their own name.
Each shareholder of the private limited company must submit a declaration and consent to the conversion of the company into an LLP along with an application.
What Shall Be the Effect of Converting a Private Company to LLP
Below are some of the effects of changing a limited liability company to an LLP:
- The partnership is deemed dissolved.
- The name of the limited liability company is removed from the commercial register.
- On conversion, all property, assets, interests, rights, privileges, liabilities, and obligations of the limited liability company are transferred to the LLP.
- Conversion will not affect existing liabilities, obligations, contracts, contracts, or continued employment.
- Any permits or licenses granted to a limited liability company under written law and in effect prior to the date of conversion shall not be automatically transferred to the limited liability company. The terms of the license are decisive here. So in most cases, you will need to get a new GST registration or FSSAI registration from the organizer.
How Can Change Pvt Ltd to Partnership
E-Form-14 is used to notify the Commercial Register of the change of legal entity to a limited liability company. This form must be submitted within 15 days after conversion. Finally, along with your Form-14, you must attach the following documents:
A copy of the incorporation deed
Copy of FiLLiP electronic form
What is procedure for conversion of LLP into a private company?
- Approval of the name by the Registrar of Companies (ROC) through the online application is the first step in the conversion process.
- Obtain DSC and DIN of seven directors of the company.
- The MCA Portal enables DIN issuance.
- After the name has been approved by the Companies Registry, the applicant must complete and submit Form URC-1.
- Next, you will need to prepare and draft your company’s official Memorandum of Association (MOA) and Articles of Incorporation (AOA) to be submitted to the Registrar of Companies.
What Are the Advantages and Disadvantages of LLP
Here are some advantages of LLP (Limited Liability Partnership):
Independent legal entity:
LLPs have separate legal entities as well as legal entities. An LLP is different than a partner. An LLP can sue or be sued on its own behalf. The contract is signed on behalf of LLP. This helps earn the trust of various stakeholders and gives customers and suppliers a sense of trust in the company.
Partner’s Limited Liability:
LLP shareholders have limited liability. Partner’s liability is limited to the contributions made by Partner. This means that they only have to pay for the contributions and are not personally responsible for the company’s losses. If the LLP becomes insolvent upon dissolution, only the assets of the LLP are obligated to pay its debts. Partners do not take personal responsibility, so they can act as reliable businessmen.
Low cost and low compliance:
The cost of setting up an LLP is small compared to the cost of setting up a public or limited company. The compliances that will be followed by the LLP will also be low. The LLP requires to file only 2 statements annually, an Annual Return and a Statement of Accounts and Solvency.
No minimum capital contribution required:
An LLP can be incorporated with no minimum capital. No minimum capital is required prior to incorporation. It can be established with voluntary investment by shareholders.
Here are some Disadvantages of an LLP((Limited Liability Partnership):
Penalties on non-compliance:
The compliance that an LLP must adhere to is minimal. However, if these compliances are not completed on time, the LLP will have to pay heavy penalties. A return must be filed with the Office of Corporate Affairs (MCA) each year, even if the LLP is inactive for the year. If it fails to file the returns, then the LLP will have to pay severe penalties.
LLP liquidation and dissolution:
To form an LLP, needs at least two partners. If the minimum number of partners is less than 2 for 6 months, the LLP will be dissolved. An LLP can be dissolved if it is unable to pay its debts.
Difficulty in raising funds:
LLPs do not have the concept of stocks or shareholders like companies. Angel investors and venture capitalists cannot invest in LLPs as shareholders. Because the shareholders are the partners of the LLP and must undertake all the tasks of the partners. Therefore, angel investors and venture capitalists prefer to invest in companies rather than LLPs, making it difficult for LLPs to raise capital.
What Are the Advantages of LLP over Company
There are some advantages of LLP over the company:
- No minimum contribution obligation.
- There are no restrictions on company owners.
- Reduce registration costs.
- No mandatory tests are required.
- Tax aspects of LLP. Dividend Distribution Tax (DDT) does not apply.
Frequently Asked Questions (FAQs):-
Can we convert Pvt Ltd company to LLP?
Yes, a limited liability company can be converted to an LLP
Who can convert into LLP?
Any individual person or legal entity can be a partner of an LLP. An LLP must have a minimum of two designated partners. There is a minimum of one named partner who must be a resident of India. A corporate partner of an LLP may appoint an individual as a designated partner.
Can we convert Pvt Ltd to one person?
A private liability company can be converted to a sole proprietorship if the annual turnover of the company must be less than Rs. 2 crores for the last 3 consecutive years.
Conclusion
Now you know about conversion of private company into LLP. Converting a partnership to a limited liability company makes it a separate legal entity, reduces the risk of liability, and keeps personal assets unaffected except in the case of fraud. The limited company formation and compliance procedures are governed by the Companies Act 2013 and the shares are privately held.