CONVERT YOUR BUSINESS
LIMITED LIABILITY PARTNERSHIP (LLP) TO A PRIVATE LIMITED COMPANY (PLC)
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LLP VS PLC
LIMITED LIABILITY PARTNERSHIP (LLP) TO A PRIVATE LIMITED COMPANY (PLC)
Limited Liability Partnership Firms (LLP) and Private Limited Companies (PLCs) are two completely different yet popular types of business models in India. The reason for choosing between an LLP and a PLC for conducting business is highly dependent on the nature of the business, amount of capital investment, number of people involved in the business and a lot more. Each of the business models has its own pros and cons, but predominantly a Private Limited Company (PLC) is considered a superior form of a business model when compared to a Limited Liability Partnership. This is because a Private Limited company has more compliances hence seeming legit in the eyes of customers, bankers and investors. Also, a Private Limited Company has many advantages over an LLP, which will be discussed in later segments. Hence converting your existing Limited Liability Partnership Firm to a Private Limited Company is the topic of this article.
This article will let you understand the step-by-step procedure to convert your Limited Liability Partnership to a Private Limited Company.
But before that, let us understand what a Private Limited Company and a Limited Liability Partnership are.
Limited Liability Partnership (LLP)
A Limited Liability Partnership (LLP) is a hybrid form of business entity that combines the flexibility of a partnership with the limited liability of a company. In an LLP, the partners have limited liability and are not responsible for the debts and obligations of the partnership beyond their agreed contribution.
LLPs are often used by professionals, such as lawyers, accountants, and consultants, who want to have the flexibility of a partnership while limiting their liability.
Private Limited Company (PLC)
A Private Limited Company (PLC) is a type of company structure in which the liability of the shareholders is limited to the amount of their share capital. It is a separate legal entity and has perpetual succession, meaning that it can continue to exist even if the original shareholders are no longer involved in the business.
PLCs are often used by entrepreneurs and small to medium-sized businesses.
ADVANTAGES
ADVANTAGES ENJOYED BY BUSINESSES BY TRANSITIONING FROM AN LLP TO A PLC.
When an LLP is converted into a Private Limited Company (PLC), it can enjoy several advantages, such as:
Limited liability protection:
One of the primary advantages of a PLC is that it offers limited liability protection to its shareholders. This means that the personal assets of the shareholders are protected from the debts and obligations of the company. In an LLP, the partners have unlimited liability, and their personal assets are at risk.
Better access to funding:
A PLC has better access to funding options, such as bank loans, venture capital, and public offerings, which may not be available to an LLP. This increased access to funding can help the company grow and expand its operations.
Greater credibility:
A PLC is perceived as a more credible and trustworthy business entity than an LLP. This can help the company attract investors, customers, and employees.
Easier transferability of shares:
A PLC offers greater flexibility in the transfer of shares, which means that it is easier for shareholders to sell or transfer their shares to others. This can help increase the liquidity of the shares and make it easier for the company to raise capital.
Better tax planning opportunities:
A PLC may offer better tax planning opportunities than an LLP, as it is subject to different tax laws and regulations. This can help the company save money on taxes and increase its profitability.
Overall, converting an LLP to a PLC can help the company enjoy better legal protection, increased access to funding, greater credibility, and greater flexibility in operations.
HOW TO CONVERT
HOW TO CONVERT YOUR LIMITED LIABILITY PARTNERSHIP FIRM TO A PRIVATE LIMITED COMPANY?
The process of converting a Limited Liability Partnership (LLP) to a Private Limited Company (PLC) in India involves the following steps:
- Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN): The designated partners of the LLP who will be appointed as directors of the PLC must obtain DSC and DIN.
- Hold a board meeting: A board meeting must be conducted to discuss and approve the conversion of the LLP into a PLC. The board must also approve the new Articles of Association for the PLC.
- File application for name reservation: An application for reservation of the new name of the PLC must be filed with the Registrar of Companies (ROC) along with the required fee.
- Prepare documents: The following documents must be prepared:
- Memorandum of Association (MOA): The MOA must state the objects for which the company is being formed.
- Articles of Association (AOA): The AOA must state the rules and regulations for the internal management of the company.
- Consent of every partner: The consent of every partner of the LLP must be obtained for the conversion.
- Statement of Assets and Liabilities: A statement of assets and liabilities of the LLP must be prepared as of the date of conversion.
- File documents with ROC: The following documents must be filed with the ROC:
- Form LLP-4: This form must be filed for the conversion of the LLP to a PLC.
- Form INC-32: This form must be filed for incorporation of the PLC.
- MOA and AOA: These documents must be filed along with the forms.
- Consent of every partner: The consent of every partner of the LLP must be filed with the ROC.
- Statement of Assets and Liabilities: The statement of assets and liabilities must be filed with the ROC.
Obtain certificate of incorporation: Once all the documents are filed and the prescribed fees are paid, the ROC will issue a certificate of incorporation for the PLC.
It is important to note that the conversion process may take several weeks and may be subject to additional requirements depending on the nature of the business and other factors. It is recommended to seek professional advice from legal and financial experts before proceeding with the conversion process.
NECESSARY DOCUMENTS
NECESSARY DOCUMENTS FOR CONVERSION OF YOUR LLP TO PLC
Here is an extensive list of documents that are required for the conversion of a Limited Liability Partnership (LLP) to a Private Limited Company (PLC) in India:
LLP Form 4:
This form must be filed with the Registrar of Companies (ROC) within 15 days of passing the resolution for conversion. It includes details such as the name and registration number of the LLP, the proposed name and registration number of the PLC, and a declaration by the designated partners certifying that the conversion is made in compliance with the provisions of the LLP Act.
Memorandum of Association (MOA) of the PLC:
The MOA defines the company’s objectives and powers, and must be filed with the ROC along with the Form INC-32 for the incorporation of the PLC.
Articles of Association (AOA) of the PLC:
The AOA contains the rules and regulations for the internal management of the company, and must also be filed with the ROC along with the Form INC-32.
Statement of Assets and Liabilities:
A statement of assets and liabilities of the LLP must be prepared as on the date of the conversion and must be filed with the LLP Form 4.
Consent of every partner:
The written consent of every partner of the LLP must be obtained for the conversion and must be submitted along with the LLP Form 4.
Proof of Address:
Documents such as electricity bill, telephone bill, or property tax receipt of the registered office address of the PLC must be submitted.
PAN Card and Aadhaar Card:
PAN Card and Aadhaar Card copies of all designated partners of the LLP must be submitted.
Address proof of designated partners:
Documents such as passport, driving license, or voter ID of all designated partners must be submitted as address proof.
Digital Signature Certificate (DSC):
The designated partners must have valid DSCs for signing the documents required for the conversion.
Board resolution:
A board resolution passed by the designated partners of the LLP authorizing the conversion and the designated partners authorized to carry out the conversion must be submitted.
NOC from the tax authorities:
A No Objection Certificate (NOC) from the tax authorities must be obtained and submitted along with the LLP Form 4.
It is important to note that the exact documents required may vary depending on the specific circumstances of the conversion, and it is recommended to seek professional advice from legal and financial experts before proceeding with the conversion process.
THINGS TO DO
WHAT WE PROVIDE FOR YOU THROUGH PAYROLL PROCESSING?
Once the newly converted Private Limited Company (PLC) receives the incorporation certificate from the Registrar of Companies (ROC), there are several steps that it should take to ensure compliance and start operating legally:
Open a bank account: The PLC should open a new bank account in the name of the company and obtain a corporate identity number (CIN) from the bank. The CIN is a unique 21-digit number assigned to every company registered in India.
Obtain PAN and TAN: The PLC should apply for a permanent account number (PAN) and tax deduction and collection account number (TAN) from the Income Tax Department. PAN is a 10-digit alphanumeric number used for tax purposes, and TAN is a 10-digit alphanumeric number used for deducting and collecting taxes.
Issue share certificates: The PLC should issue share certificates to its shareholders within two months of incorporation. The share certificates are proof of ownership of the shares and should be signed by at least two directors.
Update statutory registers: The PLC should maintain statutory registers, such as the register of members, register of directors, register of charges, etc., and update them regularly.
Apply for licenses and registrations: The PLC should obtain any necessary licenses and registrations required for its business, such as GST registration, import-export code, etc.
Comply with other legal requirements: The PLC should comply with other legal requirements, such as filing annual returns, holding annual general meetings, conducting audits, etc.
It is important for the PLC to ensure compliance with all legal requirements to avoid penalties and legal issues in the future.
HOW CAN TAXKEY HELP?
HOW CAN TAXKEY HELP?
Taxkey experts have helped dozens of businesses transition from a Limited Liability Partnership to a Private Limited Company. With our experience, we can visualize the entire process, anticipate potential places where mistakes happen and provide you with the proper guidance for the successful conversion of your business.
In addition to the conversion process, numerous other compliance regulations must be met for your newly transitioned Private Limited Company. These compliances are far more extensive than those you have encountered in your Limited Liability Partnership Firm. Our experts at Taxkey will guide you through every step of the new Compliances and will constantly educate you on the best practices to follow in future years.
Still not convinced? Click the below link to talk to our experts. Our experts will guide you on all the industry best practices you can adopt for your business.
(FAQS)
FAQS
No, the newly converted Private Limited Company (PLC) cannot use the same GST number, PAN number, TAN, or any other identities of the LLP. The conversion of an LLP to a PLC is treated as a fresh incorporation, and the new company is required to obtain separate registrations and comply with all legal requirements for the new entity.
The PLC should apply for a new GST registration, PAN, TAN, and other necessary registrations in the name of the company. The LLP's registrations cannot be transferred to the PLC, as they are specific to the LLP and cannot be used by any other entity.
It is important for the PLC to obtain new registrations and comply with all legal requirements to avoid any penalties or legal issues in the future.
Both LLP Form 4 and INC-32 form must be filed online with the Registrar of Companies (ROC) through the Ministry of Corporate Affairs (MCA) portal. After completing the forms and attaching the necessary documents, they must be uploaded on the MCA portal, and the applicable fees must be paid online. The ROC will then review the forms and either approve them or request additional information or clarification. It is important to ensure that all the details and documents are accurate and complete, as any errors or discrepancies can cause delays in the conversion process.
Yes, as per the Limited Liability Partnership (LLP) Act, 2008, it is mandatory to hold a meeting of the designated partners of the LLP to pass a resolution for conversion of the LLP into a Private Limited Company (PLC).
The designated partners of the LLP must pass a resolution for conversion and authorize one or more designated partners to take necessary actions and sign and file the required forms and documents with the Registrar of Companies (ROC) for the conversion. The resolution must be passed by a majority of the designated partners present and voting.
After the resolution is passed, the designated partners who have been authorized to carry out the conversion must file the LLP Form 4 with the ROC within 15 days of passing the resolution.
Therefore, even though an LLP is not a company and does not have a board of directors, it is still mandatory to hold a meeting of the designated partners and pass a resolution for conversion before proceeding with the conversion process.
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