A Limited Liability Partnership (LLP) is a corporate business form combining features of both Company and traditional partnership firms. It offers the benefits of a limited liability to the partners. The concept of LLP was emerged and got place in statutes in 2008 while the concept of private company is much older.
LLPs offer several advantages like separate Legal entity, limited liability of partners, perpetual succession, lesser compliance cost than companies etc. In spite of several benefits of LLP there are some drawbacks also like
- LLPs attract income tax at the rate of 30% while Companies attract income tax at the rate of 22%. This is the biggest advantage of Company over LLP.
- LLPs do not have the concept of shareholding So, Venture Capitalists and Private Equity Investors who want to actively participate in the management of the business do not prefer to invest in the LLP.
- Bankers and FIs prefer to lend Companies than to LLPs so Companies have better borrowing capacity.
For whom LLP is best?
It is suitable for the startups which need Limited Liability in business; Want to save annual compliance expenses and audit expenses, Don’t want to raise the funds from Angel Investor or Venture Capital firms in the initial phase; Don’t want to issue shares to employees as ESOP.
For whom Company is best?
It is suitable by the startup when they want need funding from investors and VCs; Offer shares to employees as ESOP; Need borrowings from Banks and FIs; Need foreign funding etc.
Conversion of LLP into Company
LLP Act, 2008 does not cover the provision of conversion of LLP into Company but Section 366 of the Companies Act, 2013 and Company (Authorized to Register) Rules, 2014 allows LLP to convert into a Company as per the provisions contained therein. Many Limited Liability Partnerships (LLPs) are now converting itself into a Private Limited Company for more growth & expansion and for infusing equity capital.
- LLP must have at least 2 partners; approval from all the partners is required.
- Advertisement in newspaper, in form URC-2, in a local language wherein registered office of LLP is situated and a national newspaper.
- No Objection Certificate (NOC) is required from the Registrar of Companies where such LLP is registered.
Process of Conversion of LLP into Company
- Publish newspaper notice in form URC-2
A notice seeking objections for conversion of LLP into company must be published in form URC-2 in atleast 2 newspapers one in local language wherein registered office is situated and another in english language newspaper.
- File RUN
Name Approval has to be obtained from the ROC by submitting an application in RUN. Object clause of Company must be attached.
- Filing form No URC – 1 & SPICe & SPICe MOA and SPICe AOA
After getting the approval of name from Registrar of Companies and after 21 days from the publication of newspaper advertisement, the applicant should file the form No URC-1 & SPICe along with the following documents.
Attachments to URC-1
- List of the members with details viz. names, address, occupation, shares held by them appropriately, etc.
- List of the first directors of the private company with details viz. names, address, the DIN etc.
- An affidavit from every person proposed as first directors, that he is not banned to be a director under section-164
- A list including the names & addresses of partners of LLP
- A copy of LLP agreement & certificate of registration duly verified by two designated partners
- A statement indicating the following specifications q) the nominal share capital of firm & the number of shares into which it is separated b) the number of shares taken & the amount paid for every share c) the name of the firm, with the addition of word Limited or private limited is required.
- A written consent of all partners of LLP
- A written consent or No objection certificate from all creditors.
- Copy of newspaper advertisement,
- Statement of accounts of the company which must not be 30 days preceding the date of the application and it must be duly certified by the auditor.
- A copy of latest income tax return
- Undertaking by proposed first directors with regard to compliance with Stamp Act
Attachments to SPICe
- Consent & Declaration by first Directors in form DIR-2; (On Plain Paper)
- Self-Declaration by first directors and subscribers in form INC-9; (On Plain Paper)
- ID Proof and Address Proof of Directors; (PAN card and Aadhar card)
- Resolution of Partners for conversion of LLP into Company;
- Proof of regd. Office like Rent Agreement/Sale deed
- Latest Electricity bill (Not older than 2 Months)
- NOC of Owner of Office, If Regd office is rented.
- Issue Share Certificates to the members.
Recently, Government slashed the corporate tax rate of Companies from 30% to 22% while tax rate on LLPs are unchanged and continue to attract tax @ 30%. So, many existing LLPs are now planning to convert themselves into Companies for multiple reasons like Growth and Expansion, Infusing equity capital, reducing tax liabilities, receiving foreign investment, attracting VCs and HNIs etc.
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