Want to expand and grow your business registered as an LLP? You might want to convert it into a private limited company to make that happen.
A limited liability partnership is a relatively new business structure that was introduced under the LLP Act, 2008. The registrations for LLP in India began in the year 2010, and according to the statistics, the registrations for LLPs increased by over 55% in the financial year 2014-15, while registrations decreased for private limited companies.
While the LLP is a low-barrier method of entering into a business, in the long run, having a private limited company is much more beneficial, especially if you plan to expand your business and get investors for the same. So, many businesses and companies registered under the LLP ACT are now looking to convert into a private limited company due to the growth in their business and also due to the benefits of a private limited company.
An LLP can be converted into a private limited company according to Section 366 of Companies Act, 2013 and also Companies Rules, 2014.
Converting a Limited Liability Partnership into a Private Limited Company:
There are certain conditions and requirements that need to be satisfied in order to convert an LLP to a private limited company. These are as follows:
- The LLP must have a minimum of 2 partners
- All the partners must approve for converting the company or firm
- An advertisement needs to be done in local and national newspapers
- The RoC where the LLP is registered must provide a no-objection certificate (NOC).
Once all the above-mentioned requirements are satisfied, the incorporation process comes into action. The incorporation process is as follows:
- Approval of name has to be obtained from the RoC (Registrar of Companies) by submitting an application online. In order to apply for the name, one needs to choose from the items mentioned in INC Form-1. Once accepted, the name has a validity of 60 days.
- The Digital Signature Certificate (DSC) and the Digital Identification Number (DIN) must be obtained for all the partners of the LLP.
- To obtain the DIN, the application has to be filed on the portal of the Ministry of Corporate Affairs (MCA).
- The application is processed and further approved by the MCA (Ministry of Corporate Affairs).
- All the documents must be submitted according to the requirements.
Filing Form No. URC-1:
Once the name gets approved by the Registrar of Companies, one needs to file Form-1 along with the following documents:
- The details of all the members, namely, address, name, DIN, passport number, etc.
- The list of the first directors of the company along with their details as well
- An affidavit from all the First Directors stating that they are not banned to be the director under Section 164. All the documents so filed must be complete, correct and the information provided must be true
- A list that includes the names and addresses of all the partners under LLP, along with a copy of the LLP
- A statement that indicates the following:
- The number of shares of the company and the ratio into which they are divided
- The number of shares that are taken and the amount involved in every share
- The name of the firm has to be provided along with the addition of limited or Pvt. Ltd.
- A no-objection certificate from all creditors
- The statement of accounts of the company and copy of the newspaper advertisement.
Memorandum of Association and Articles of Association:
Once the name is approved and the Form-1 is sanctioned by the RoC, the Memorandum of Association (MoA) and Articles of Association (AoA) are to be formulated.
Once all the above steps are completed, the Liability Limited Partnership can be converted to a Private Limited Company.
Which is Better? LLP or Private Limited Company?
LLP is the preferred option in the case of small businesses and companies whose turnover is less than ₹40 lakhs annually and also the capital contribution is below ₹25 lakhs. An LLP that satisfies these conditions do not need any annual audits. Whereas, in the case of private limited companies, the audit of the financial statements has to be submitted irrespective of the turnover of the company.
As such, in the case of small and growing businesses, the LLP has an edge over the private limited companies. But, if the turnover is more than ₹40 lakhs annually, Pvt. Ltd. companies are preferred and are better because LLPs do not attract venture capitalists and investors, making the LLP structure a big no for major companies involved in long-term growth.
It is solely the choice of the individuals or partners in the business and also, the growth and turnover of the business by which one can decide whether it is good to register as an LLP or a private limited company.