Private Limited Companies (Pvt. Ltd) become Limited Liability Partnerships (LLP) for increased operational flexibility, additional tax benefits, and less regulatory compliance. Conversion of Pvt Ltd to LLP entails a series of legal and procedural steps, one of the most important being LLP Registration as it legally constitutes the newly converted LLP.

In this guide, Lawfinity describes the rationale for conversions, the conversion steps, compliance requirements post-conversion, and the assistance we provide during the entire process. We aim to make certain that your conversion is legally secure, strategically advantageous, and fully compliant with the most recent legal changes.

WHY CONVERT?

Pvt Ltd to LLP conversions are most often the result of operational shifts, changes in business strategy, or management style. Here are some of the most common reasons for conversion:

● Lower Compliance Requirements: LLPs are subject to fewer compliance obligations than private limited companies, as there are no requirements for board meetings, no annual general meetings, and fewer filings.

● Tax Efficiency: LLPs profit taxation occurs solely at the entity level without profit distributions being taxed again.

● Operational Flexibility: LLPs offer greater management, profit sharing, and decision-making flexibility.

● Cost Reduction: Annual filing fees, audits, and statutory records generate significant cost reductions. as lower mandatory audits and statutory records mean overall cost reductions.

● Simpler Exit & Succession Planning: LLP agreements allow the exit and succession provisions to be as flexible as necessary to facilitate partner exits, retirements, and ownership transfers.

● Better Suitability for Service-Based Firms: The LLP model's operational simplicity greatly aids consulting, professional services, and family-run businesses.

These benefits, however, are countered by LLPs ability to issue shares or attract VC investments which is detrimental to fundraising possibilities.

PROCESS

A. Eligibility for Conversion

The first condition to be met for Pvt Ltd to LLP Conversion to start is as follows.

● There shouldn't be any active charges on the company’s assets.

● Every shareholder of the Pvt Ltd company is to be a partner of the LLP.

● There are no default, legal proceedings, or compliance issues.

● The company must not be listed or be engaged in banking, finance, or insurance.

All ROC filings for the private company need to be current and accurate.

With these conditions fulfilled, we may commence the process for LLP Registration and conversion.

B. Step-by-Step Process

● Board Resolution: Have the Board pass a Resolution for Conversion for the company to change its legal structure to an LLP.

● Shareholder Approval: Obtain a special resolution from the shareholders allowing for the change in structure and consent to become partners in the LLP.

● Name Reservation: File a name reservation application for the LLP with the MCA portal and check to see whether the name meets the guidelines.

● Document Preparation

Prepare the following for the process:

○ Consent letters from shareholders

○ Statement of assets and liabilities

○ No objection certificate from creditors (if any)

○ Draft the LLP agreement

○ Partner details and identification proof and DSCs

○ Conversion Application

File the prescribed form and attachments with the conversion application via the MCA portal.

● Certificate of LLP Registration: The Registrar will, in due course, approve the application and issue a Certificate of Incorporation to the LLP. The private limited company remains closed from this date.

● LLP Agreement (Form 3) Filing: This needs to be done to finalize LLP Registration. It is due once the incorporated LLP has existed for 30 days.

● Intimation to ROC (Form 14): Inform the prior Registrar of Companies about the conversion and file required documents.

COMPLIANCE POST-CONVERSION

After the conversion is accomplished and LLP Registration is received, the subsequent compliance actions are required:

● Annual Compliance: Annually file Form 11 (Annual Return) and Form 8 (Statement of Accounts). An audit is required only when turnover is more than ₹40 lakhs or capital contribution is more than ₹25 lakhs.

● Keeping of Registers: Maintain registers of partners, beneficial ownership, and contribution as prescribed under the LLP rules.

● Change in Registered Government Documents: Apply for new PAN, TAN, and GST and modify all relevant licenses in the name of the LLP.

● Change in Banking and Finances: Notify the banks about the new structure and make changes to all cheque books, letterheads, and financial mandates.

● Notify Stakeholders: Inform clients, suppliers, employees, and other interested parties about the conversion, and ensure that all formal communications cite the modification for a defined duration.

● Stamping of the LLP Agreement: Ensure that the LLP Agreement is stamped according to the relevant state Stamp Act.

Lawfinity provides seamless legal, tax, and procedural support for your Pvt Ltd to LLP Conversion and hassle-free LLP Registration. This is how we assist you:

HOW LAWFINITY ASSISTS

We analyze business compliance for conversion and determine conditions to be fulfilled.

● Legal Drafting: All necessary board resolutions, shareholder consents, declarations, and LLP agreements which are customized to your business needs are drafted by our experts.

● Filing and Documentation: We take care of filings on MCA, name approvals, digital signatures, and submission of forms.

● Post-Registration Setup: We assist you in the first statutory record update post LLP Registration as well as update licenses and agreements.

● Tax Advisory: We evaluate tax implications for compliance with Section 47 of the Income Tax Act, and do tax savings conversion.

● Compliance Monitoring: Lawfinity provides ongoing assistance for compliance, which includes filing annual returns and keeping up with record maintenance and changes in laws.

With Lawfinity, you will obtain a transition that is legally compliant, strategically planned, and free of errors.