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Company to LLP

LLP is a combination of both Company and Partnership. It is especially suitable for small to medium-sized business enterprises.

It is governed by Limited Liability Partnership Act- 2008 which came into force from April 1, 2008.  This Act was proposed for promoting the Micro Small Medium Enterprise.

LLP registration has the advantage of self-governance and less compliance as compared to other types of corporate entities.

Documenting of Application for Conversion into LLP

Form 18 is the form of the conversion of a company into an LLP. But it needs to be filed with Form for incorporation itself.

This form has information about the conversion of the company into LLP such as:

Whether all the shareholders of the company have given their consent for the conversion of a company into the LLP.

If all the partners of the LLP comprise all the shareholders of the company and no one else.

An up to date Income-tax return is file as per the Income-tax act, 1961.

Documents including the latest balance sheet and annual returns under the Companies Act, 2013 filed with MCA.

Validating if any conviction, ruling, order, a judgment of any Court, Tribunal or other authority in favor of or against the company is subsisting as on date?

Getting to know regarding any security interest in the assets of the company is subsisting or still in force.

Whether any earlier application for conversion of the said company into a limited liability partnership was refused by the Registrar.

If there is a presence of any secured creditors.

Tax assessment ON CONVERSION OF COMPANY INTO LLP

It is best to know everything about Limited Liability Partnership in India including the effects on taxation after conversion. The conversion of the Company into an LLP will not attract capital gain tax as this conversion is not a “transfer” as defined under the IT Act.

Also, it will not attract capital gain tax subject to the following conditions:

All the assets and liabilities of the Company become the assets and liabilities of the LLP.

All the shareholders of the Company become partners of the LLP

The capital proportion and profit-sharing ratio of partners are in the same proportion as that of the shareholding in the Company.

The shareholders do not receive any benefit, directly or indirectly in the LLP, except by way of capital contribution and profit-sharing ratio.

The total sales, gross receipts, and turnover in any of the three preceding years from the date of the conversion does not exceed Rs. 60 Lacs.

The total value of assets as appearing in the books of account of the Company in any of the previous three years does not exceed Rs. 5 crores.

IMPACT OF CONVERSION 

The following are some of the implications due to the conversion of a company into an LLP:

The private company is dissolved after conversion.

The name of the private limited company will remove from the register of the ROC.

The conversion will not affect existing liabilities, obligations, agreements, contracts, and continued employment.

The company has to intimate all the authorities concerned about the conversion and make necessary changes in all the registrations and licenses.

FAVORABLE CIRCUMSTANCES OF CONVERSION

On the conversion of a private limited company into an LLP, all assets and liabilities of the company will convert into those of the LLP. However, no instrument of transfer required. Hence there will not be any stamp duty implications on such transfers as well.

There is no limit to the number of partners; which is not so in the case of private limited companies.

There is no compulsion on holding a minimum number of meetings and maintaining statutory records.