Compliance under Companies act

Conversion of Partnership to LLP

After implementation of Limited Liability Partnership (LLP), more and more Partnership Firms are converting themselves to Limited Liability Partnership (LLP) for obvious reasons of unlimited number of Partners, perpetual succession, limited liability, transferability etc. In this article we will discuss about the step by step procedure to convert a Partnership Firm into a Limited Liability Partnership (LLP).

Buy a Digital Signature Certificate

First requirement after the Partners of a Partnership Firm decides to convert their Partnership Firm into Limited Liability Partnership is to get a Digital Signature Certificate (DSC). Class 2 Digital Signature Certificate (DSC) is required for this purpose. Click here to know more about Digital Signature Certificate.

Get Directors Identification Number (DIN)

DIN is a unique number issued by the Ministry of Corporate Affairs (MCA). Directors and Designated Partners of all the Private Limited Companies or LLPs have to register themselves with the MCA by providing some documents. On receipt of the documents, MCA allots a unique number which is called DIN.

MCA used to issue Designated Partnership Identification Number (DPIN) for the Designated Partners of Limited Liability Partnership. To avoid duplicity and to give ease to stakeholders, MCA vide its circular dated 8th July, 2011 has integrated DIN and DPIN. Therefore to become Designated Partner of a Limited Liability Partnership, one has to obtain DIN only.

Name Application and Approval

On obtaining DIN from the Ministry of Corporate Affairs, the first step is to apply for desired name. Name approval by MCA is necessary before filing any document regarding conversion of Partnership Firm to LLP.

Filing of forms required for conversion of Partnership Firm to LLP (LLP Form 17 etc.)

When name has been made available by the Ministry of Corporate Affairs (MCA), LLP Form 17 (Application and statement for conversion of firm into Limited Liability Partnership (LLP)) along with other required forms like has to be filed with the ROC. Other forms are as given below,

• Form 2 (Incorporation document and subscriber’s statement),
• Form 3 (Information with regard to Limited Liability Partnership agreement and changes, if any, made therein)
• Form 4 and Form 9 (Notice of appointment, cessation, change in name / address / designation of a designated partner or partner and consent to become a partner / designated partner)

Along with the above mentioned forms, following documents must be attached:

• Statement of Partners;
• Subscription sheet signed by the promoters;
• Statement of Assets and Liabilities of the Company duly certified as true and correct by a Chartered Accountant;
• Duly stamped LLP Agreement;
• Proof of Address of Registered Office;
• List of all unsecured creditors along with their consent to conversion;
• Approval from any other authority / body, if required;
• Clearance / No objection from Tax Authorities.

On submission of all the above documents and forms with the Registrar of Companies, and upon solving all the queries raised by the Registrar of Companies, Certificate of Incorporation of LLP is issued. Partnership is converted into LLP, on the date of issue of Certificate of Incorporation. All the Assets, Liabilities, interests, rights etc are transferred to LLP.

Things to remember before conversion of Partnership Firm to LLP

The licenses, approvals or permits issued to Partnership Firm under any law do not get transferred to LLP automatically. LLP has to reapply for all those licenses. The promoters should consider this aspect before arriving at decision to convert Partnership Firm to LLP.

Besides the above stated process, documentations and things to remember, the promoters should read below mentioned articles for conversion of Partnership to LLP.

• Conversion of Partnership Firm to LLP – Overview, Effects and Procedure
• Comparison – Partnership Firm to LLP
• Reasons to convert Partnership Firm into LLP

Conversion of Partnership to Private Limited Company

Corporatisation is the need of the hour. The entire world is gradually drifting towards one global market without any trade barriers between the countries. A small unincorporated organization led by few partners cannot think of growth on large scale without corporatizing itself.

Corporatisation has its own advantages such as Limited Liability, Perpetual Succession, Transferability of shares, easy access to funds etc. Advantages of converting All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the company.

• No Stamp Duty- All movable and immovable properties of the firm automatically vest in the Company. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.
• No Capital Gain Tax- No Capital Gains tax shall be charged on transfer of property from Proprietorship firm to Company.
• Continuation of Brand Value- The goodwill of the Proprietorship firm and its brand value is kept intact and continues to enjoy the previous success story with a better legal recognition.
• Carry Forward and Set off Losses and Unabsorbed Depreciation- The accumulated loss and unabsorbed depreciation of Partnership firm is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company.

Mandatory Conditions

All partners of the partnership firm shall become shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the conversion.

• The partners receive consideration only by way of allotment of shares in company and the partners share holding in the company in aggregate is 50% or more of its total voting power and continue to be as such for 5 years from the date of conversion.

Requirements

• Registered Partnership firm with minimum 7 Partners
• Minimum Share Capital shall be Rs. 100,000 (INR One Lac) for conversion into a Private Limited Company
• Minimum Share Capital shall be Rs. 500,000 (INR five Lac) for conversion into a Public Limited Co.
• If the above requirement is not fulfilled by the firm, then the Partnership deed should be altered
• Minimum 7 Shareholders
• Minimum 2 Directors (for Private Limited Co.) and 3 Directors (for Public Limited Co.)
• The directors and shareholders can be same person
• DIN (Director Identification Number) for all the Directors
• DSC (Digital Signature Certificate) for two of the Directors

Process

• Filing of requisite form for Conversion
• Preparation of Foundation documents of the Company
• Filing for name approval
• Filing of Incorporation documents
• Receiving certificate of incorporation

Conversion of Private Limited Company to Public Limited

Key Benefits

• Easy access to Public for raising funds Public limited Company is the only corporate form of organization which is allowed to raise funds from general public. Public Limited Company enjoys better avenues for borrowing of funds. It can issue debentures, secured as well as unsecured, accept deposits from the public, etc. Banking and financial institutions prefer to render large financial assistance to Public Limited Companies. Even a closely held Company can operate as a Public Company without diluting promoters' stake.
• High market recognition Public Limited Companies as compared to other business forms enjoys better recognition in the market and bestows confidence in the stakeholders.

Key Requirements

• Minimum Authorised Share Capital shall be Rs. 500,000 (INR Five Lac)
• Minimum Paid-up Share Capital shall be Rs. 500,000 (INR Five Lac)
• Minimum 7 Shareholders
• Minimum 3 Directors
• The directors and shareholders can be same person
• If the above requirements are not fulfilled by the Private Company, then the relevant
alterations/changes to be made before conversion
• DIN (Director Identification Number) for all the Directors
• DSC (Digital Signature Certificate) for one of the Directors

Conversion of Private Limited Company to OPC

• A Private Limited Company can be converted into One Person Company, as per the Companies act, 2013.
• A Private Company, other than a company registered under section 8 of the Act, having paid up share capital of Rs. 50 Lakhs or less or average annual turnover during the relevant period is two crore rupees or less may convert itself into one person company.
• In other words a Private Company with paid up capital of more than 50 Lacs or average annual turnover of more than Rs.2 Crores, cannot convert itself into One person Company.
• A Special Resolution in the General Meeting has to be passed to approve such conversion, before passing such resolution, the company shall obtain a No Objection in writing from existing members and creditors.
• It is important to note that No objection in writing from existing members and creditors is required shall be collected before passing Special Resolution.