Procedure - conversion of LLP into company

Converting Your LLP to a Private Limited Company: A Step-by-Step Guide

The conversion of a Limited Liability Partnership (LLP) into a Private Limited Company is governed by the provisions of Section 366 of the Companies Act, 2013, and the Companies (Authorised to Register) Rules, 2014. This process allows a growing business to change its legal structure to access more benefits like easier fundraising, the ability to issue stock options (ESOPs), and a more defined corporate structure.

Here is a detailed procedure for the conversion:

1. Eligibility and Pre-Requisites

Before initiating the conversion process, ensure that the LLP meets the following criteria:

• Consent of Partners: All partners of the LLP must consent to the conversion.

• Minimum Number of Members: The LLP must have at least two partners to become the shareholders of the new private limited company.

• Statutory Filings: The LLP must be up-to-date with all its annual returns and financial statement filings with the Registrar of Companies (RoC).

• No Outstanding Debts: It is advisable to have no unsecured outstanding debts. If there are secured creditors, a No Objection Certificate (NOC) from them will be required.

2. The Conversion Procedure

Step 1: Hold a Meeting of Partners

• Convene a meeting of all the partners of the LLP.

• Pass a resolution with the consent of all partners to convert the LLP into a Private Limited Company.

• The resolution should also authorize one or more partners to execute all necessary documents for the conversion.

Step 2: Obtain Director Identification Number (DIN) and Digital Signature Certificate (DSC)

• All proposed directors of the new company must have a DIN.

• If the designated partners who will become directors do not have a DIN, they must apply for it.

• A Digital Signature Certificate (DSC) of at least one of the proposed directors is required for electronically filing the forms.

Step 3: Name Reservation for the Company

• An application for reserving the name of the new private limited company must be filed using the SPICe+ Part A form on the Ministry of Corporate Affairs (MCA) portal.

• The proposed name will typically be the existing name of the LLP with "Private Limited" added as a suffix.

Step 4: Publish a Newspaper Advertisement

• The LLP must publish an advertisement in Form URC-2 regarding the proposed conversion.

• This advertisement must be published in two newspapers: one in an English newspaper and one in a vernacular language newspaper circulating in the district where the LLP's registered office is located.

• The advertisement is to seek objections, if any, from the public within 21 days of publication.

Step 5: File Form URC-1

• After 21 days of the newspaper publication, the LLP must file Form URC-1 (Application by a company for registration under section 366).

• This is the main application for conversion and must be filed along with a comprehensive set of documents.

Step 6: File SPICe+ Form for Incorporation

• Along with Form URC-1, you need to file the SPICe+ (Simplified Proforma for Incorporating Company Electronically) form. This integrated web form offers several services, including:

  • Application for DIN

  • Name Reservation (if not done separately)

  • Incorporation of a new company

  • Application for PAN and TAN

Step 7: Draft Memorandum of Association (MOA) and Articles of Association (AOA)

• The MOA and AOA are the charter documents of the company.

• e-MOA (INC-33) and e-AOA (INC-34) must be drafted and filed along with the SPICe+ form.

• The MOA will state the objects of the company, and the AOA will contain the internal regulations for its management.

Step 8: Obtain Certificate of Incorporation

• Once the RoC is satisfied with all the submitted documents and forms, it will issue a Certificate of Incorporation.

• This certificate is conclusive evidence that the company is legally incorporated.

3. Required Documents for Conversion

You will need to prepare and submit the following documents along with the application forms:

• A list of all the partners with their details (name, address, shares held).

• A copy of the LLP Agreement.

• A statement of the assets and liabilities of the LLP, duly certified by a Chartered Accountant, not older than 15 days from the date of filing the form.

• A copy of the latest Income Tax Return of the LLP.

• A No Objection Certificate (NOC) from all secured creditors.

• A copy of the newspaper advertisement.

• An affidavit from all the partners stating that they are not disqualified to be directors.

• An undertaking from the proposed directors for compliance with the Indian Stamp Act.

• The consent of the majority of members for the conversion.

4. Post-Conversion Formalities

After the conversion is complete and the Certificate of Incorporation is received, you must undertake the following steps:

• Inform the LLP Registrar: The newly formed company must inform the Registrar of LLPs about the conversion within 15 days of incorporation. The Registrar will then formally dissolve the LLP.

• Update PAN and TAN: Apply for a new PAN and TAN for the company.

• Update Bank Account Details: Close the LLP's bank accounts and open new accounts in the name of the private limited company.

• GST and Other Registrations: Update the GST registration and any other licenses and registrations to reflect the new legal status.

• Update Stationery: All business stationery, including letterheads, invoices, and signboards, must be updated with the new company name and details.

This comprehensive procedure ensures a smooth transition from an LLP to a Private Limited Company, setting the stage for future growth and expansion. It is advisable to consult with a legal or financial professional to navigate the process effectively.