Company IncorporationLLP

Can a Newly Incorporated Company be Converted into LLP?

LLPs are highly preferred business vehicles when we consider the prominent organizations that operate in India as well as abroad. Read this article to know how new companies can convert their entitlement into an LLP

LLPs or Limited Liability Partnerships are gaining widespread popularity owing to the proposed business model that offers long-term benefits. This system is an amalgamation of Partnership and corporate business and therefore retains the perks of both structures. Business owners consider LLP as an alternative business form through which they can achieve the flexibility of partnership deals. Lets see is it possible to Converting New Company into LLP.

You should note that LLPs are separate legal entities and the associated shareowners are not responsible for the maintenance of its assets. Also, the partners’ liabilities are determined through their individual contributions to forming the LLP. 

Changes in the members’ panel are not expected to affect the legal stance of the LLP. The LLP will be able to sign new contracts and continue to enjoy property rights. Additionally, no partner will be held responsible for the unauthorized and individual whims of other shareholders. Therefore misconduct or individual criminal offences do not bother the associated partners and pose no threat to their past business decisions. 

LLPs are referred to as a hybrid of both the partnership and company as these businesses carry the attributes of both models. 

LLP concept is recognized in many significant nations like India, USA, Australia, UK, Singapore, etc. LLP legislation is predominately structured centering on the principles of Singapore LLP law (2005) and the UK LLP Act. The latter legislation came into force in 2000. These judicial statements enable businessmen to generate a separate corporate body that will be treated separately for legal matters and the members or partners will not be involved in such cases.

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Methods through which a new company can become an LLP

The foremost step is to arrange for a Board meeting. This initiative is critical as Board Resolution decided whether the company is eventually going to experience a change in its operational courses. 

The next step is securing written consent from each shareholder who has voted in favour of LLP conversion. In association with the ROC now you need to file a request for name options via a digital form named ‘RUN-LLP’.

 As the rules say you need to submit the agreed-upon object clause along with the minutes of the Board meeting to avail the application for name availability. When the name gets assigned you need to carry out the necessary documentation in the form of a subscriber sheet, consent, etc. and after that simply file the FiLLip form and Form 18 after communicating with the RoC.

Documents that complement form FiLLip

  • Written consent collected from designated partner
  • Subscription sheet
  • Papers bearing the address of the Registered LLP office. These documents can either be lease deed/ sales deed/ rent agreement etc. 
  • If the property is accessed on rent then a No Objection Certificate must be secured from the office owner.
  • Most recent utility invoice of the registered workplace
  • Specifications of Limited Liability Programs and company(s) where the partners act as directors or executives. 

Documents that complement form 18

  • The foremost requirement is the shareholders’ statement. This document is received from every shareowner who conveys their consent in written format.
  • Auditor’s certification ensures that the stated list of liabilities and assets of the enterprise are correct to the best of his knowledge.
  • Complete list of the creditors (if any). Their consent is unavoidable before the owners are considering an LLP conversion. An acknowledgement copy of the most recent IT return is also required. 

Above all these documents the Registrar of Companies will ask to produce additional documents such as an auditor’s certification that the organization is not involved in NBFC acts. Also, self-declaration has to be generated from the shareholders’ end mentioning that their company is not linked to any secured creditors as of the application filing date. 

The RoC now reconciles the application submitted by a newly incorporated company to decide whether the LLP proposal can be accepted or not. Once approval is passed on by the authorities please file the details through the digital LLP-3 form within 1 month of conversion approval offered by the RoC.

Criteria for a Successful LLP Conversion

Each company executive and member have to agree with the conversion policies. After the conversion is solemnized they should understand that all of them will turn up as LLP partners and there will be room for no outsiders for partnership roles. The members must inform the creditors too about subsequent planning regarding the company’s conversion strategy to form an LLP, this is necessary to collect their consent. 

Under Companies law, the prosecution must not be initiated in a different method, the same implications will be active as they remained for the old company. The RoC specifies the proprietors to file the pending returns and forms and keep them updated. Unsatisfied charges should not be active against the corporate body. 

The company no matter how new it might be must file at least one annual return and perform a balance sheet after its official operations kicked off. Share capital acquisition is also a must for the brand. 

Lastly, the jury verifies whether the company does not fall under the category of Section 25 / Section 8 companies which are banned from LLP approval as per the Companies Act (2013).

LLP Benefits

There is no minimum capital fixed by the Registrar that is needed to register an LLP. 

LLP formation calls for at least two members who agree to become business partners. The maximum limit of LLP partners is however not set. Registration expenses are not as high as those required in the case of corporate organizations. 

The limited companies must hire auditing services, on the other hand, LLPs have no such requirement until their yearly contributions are crossing ₹40,000. 

LLPs are also exposed to minimum compliances if we compare them against public and private companies. These agencies need to take care of annual IT returns and file two documents in association with the RoC. LLPs are treated equivalent to partnership firms. DDTs or dividend distribution tax is not levied on LLPs. 

Under Section 40(b) however deductions are applicable on the interest disbursements extended to the partners. Also, tax is levied on salary bonus commissions.

Conclusion

As we look into the compliances, tax policies and operational structure of LLPs, we can easily conclude that this system is best suited for midscale to smaller organizations. Industries that depend largely on professionals or service sectors have widely accepted LLP models on a global scale. 

The article describes the whole conversion method along with requirements that need to be addressed. Vakilsearch keeps you updated with business legislation thus to know more read our other blogs as well.

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