Every day with the growing complexity of business operations, the strategies to play safe and sound in a taxation system like India need to be molded.
Where the cons of a private limited company come to an end, the pros of an LLP take a flight. The LLPs are regulated by the Limited Liability Partnership Act 2008
Exclusive Benefits
Business Ownership
- The Companies Act 2013 specifies the maximum limit of owners to be 200, which is not the case in the case of LLP.
- Regarding the members, the minimum number of partners is required to be only two,
- And the limit can go up to any number of members more than 200.
Less number of compliances
- A private limited company is burdened with a lot of compliances, which can be up to 10 per annum.
- LLP has just meager compliance of filing one Annual Return and a statement of Accounts and Solvency.
Benefit of taxation
- The conversion of private limited to LLP does not require the payment of any capital gains tax.
- The taxation of LLPs is done at par with the partnership firms.
- Under section 40(b) of the income tax act, an LLP can claim a deduction for payment of any interest, salary, bonus, commission, remuneration to partners.
- The share of the profit to partners is not liable to tax, which is not the case with the companies which distribute taxable dividends.
Audit Compliances
- A private limited company is mandated to get its books of accounts audited by a practicing Chartered Accountant, which is not the case with LLPs.
- Only if the turnover of the LLPs exceeds INR 40 lakhs
- And the contribution from the partners has exceeds INR 25 lakhs, the LLP will have to get its books audited.
Checklist for conversion
Here is a checklist of what you need to do in order to convert a private limited company to an LLP
- Obtain Director Identification Number for the would-be partners in LLP (DIN)
- Convene a BOD meeting.
- Apply for the reservation of name from the registrar and get approval certificate from ROC
- File e form “Filing of incorporation form” with the prescribed documents
- Along with filling up the form for incorporation, fill e form 18 for conversion to LLP and wait for the issuance of Certificate of Incorporation number (CIN)
- Now draft a limited liability partnership as per the rules prescribed in the Limited Liability Partnership Act, 2008
- File e form 3 within 30 days of the issuance of CIN
- Also after receiving CIN make sure to file e form 14 to ROC
How to convert
- Call a board meeting to pass a resolution for such conversion
- Apply for name reservation of LLP on MCA portal
- File e form for filing of incorporation of LLP with the prescribed documents
- Proceed to file form 18
- Now file form 14 within 15 days of approval of form 18 by ROC.
- After the issuance of CIN, proceed to file form 3 with thirty days of the issuance.
- Take help from the experts in doing these steps.
Documents required
- Consent of each of the shareholders of the company willing to convert into an LLP in a specified format
- Document of incorporation of a company in Form 2
- Form 3 which is the application of declaration into the formation of an LLP
- No objection certificate from the tax authorities
- Statement showing assets and liabilities of the company
- A list showing the consent of all the creditors of the company
- Optional attachments, if any, like the CIN issued by the Registrar, DIN, etc. to be disclosed at later stages.
FAQs
Can a listed company be converted into LLP?
No, only private or unlisted companies can do so
Can I change the name of my private limited company when converting into LLP?
No, you have to keep the same name with the addition of only the word LLP allowed after the name
Is it mandatory to get filed and registered under the partnership agreement under LLP?
Yes, it is mandatory.