Conversion of a Private Limited Company to an LLP and Vice Versa: A Detailed Overview
Rakesh Gupta
Rakesh Gupta (FCS, LLB) is a seasoned corporate and legal advisor with over a decade of experience in Company Law, Secretarial and Compliance services. He leads RMR & Company, a peer-reviewed Practicing Company Secretary (PCS) firm renowned for its expertise in ROC filings, NCLT matters, and a wide range of corporate legal assignments. Through his deep knowledge and practical approach, Rakesh continues to support businesses in navigating complex regulatory landscapes.
In India’s evolving business landscape, entities often choose to restructure based on regulatory, operational, and financial considerations. Among the many forms of restructuring, conversion between a Private Limited Company (PLC) and a Limited Liability Partnership (LLP) is quite common. Tax benefits, ease of compliance, business flexibility, or investor preferences typically influence this change. This article explores the process, benefits, and legal framework for both directions of conversion — from PLC to LLP and vice versa.
I. Conversion of Private Limited Company into LLP
A. Why Convert to LLP?
A Limited Liability Partnership blends the benefits of a partnership and a company. Some key reasons for converting include:
- Simplified compliance requirements compared to those under the Companies Act.
- No dividend distribution tax and fewer audit requirements.
- Limited liability protection for partners.
- Flexible management structure, not bound by a board of directors or strict meeting formalities.
B. Legal Framework
The Limited Liability Partnership Act, 2008, governs the conversion process. Relevant provisions lie under Section 56 of the LLP Act, along with Schedule II (for conversion of Private Companies to LLP).
Only certain companies are eligible:
- They must be unlisted Private Limited Companies.
- Should have no security interest in its assets at the time of conversion.
- All shareholders must become partners in the LLP post-conversion.
- There must be no ongoing legal proceedings or outstanding dues.
C. Step-by-Step Conversion Process
1. Hold Board Meeting
Pass a resolution approving conversion and authorizing a designated partner to file necessary documents.
2. Apply for DSC and DIN
At least two designated partners must possess a Digital Signature Certificate (DSC) and a Director Identification Number (DIN).
3. Name Reservation
File RUN-LLP (Reserve Unique Name) on the MCA portal to reserve the LLP name.
4. Filing Form FiLLiP
Submit the Form for Incorporation of LLP (FiLLiP), along with necessary attachments like consent letters, ID proofs, and address proofs.
5. Filing Form 18
This is the key form for conversion, filed with FiLLiP. It includes:
a. Statement of shareholders
b. Consent from partners
c. Statement of assets and liabilities
d. Latest Income Tax return acknowledgment
6. Certificate of Registration
Upon verification, the Registrar will issue a Certificate of Incorporation of LLP.
7. Post-Conversion Formalities
a. Update PAN, TAN, bank accounts, and other licenses.
b. Inform stakeholders and regulatory bodies.
c. File eForm 14 with the ROC within 15 days, notifying about the conversion.
II. Conversion of LLP into a Private Limited Company
A. Is It Legally Allowed?
Unlike the conversion of a company into an LLP, the Companies Act, 2013 does not explicitly permit the conversion of an LLP into a company. However, under the Company (Incorporation) Rules, 2014, and Section 366 of the Companies Act, 2013, such a conversion is permitted by treating the LLP as a ‘firm’ or an ‘unregistered company.’
B. Key Considerations
- A minimum of seven partners or members is required (as per Section 366).
- The LLP must be functioning for at least two years.
- A newspaper advertisement in two languages (one English and one vernacular) is mandatory.
- Creditors’ consent is essential.
- No legal disputes or outstanding liabilities should exist.
C. Step-by-Step Conversion Process
1. Board Resolution and Partner Consent
Obtain consent from all partners of the LLP to proceed with the conversion.
2. Name Availability Check
File RUN (Reserve Unique Name) with MCA to reserve the desired company name.
3. Prepare Documentation
Collect:
a. Statement of assets and liabilities
b. List of partners and their consents
c. Latest Income Tax return
d. MOA and AOA in line with Companies Act provisions
4. Advertisement in Newspapers
As per Rule 4(1) of the Companies (Authorised to Register) Rules, publish a public notice in English and regional newspapers inviting objections, if any.
5. File Form URC-1
The application for registration of an entity under Section 366 is made using Form URC-1, attaching:
a. LLP agreement
b. Consent of the majority of partners
c. Details of existing liabilities and settlements
6. File Incorporation Forms
After URC-1 approval, file SPICe+ Parts A and B, AGILE-PRO, INC-9, and the MOA/AOA to complete incorporation.
7. Certificate of Incorporation
On successful verification, the Registrar issues the Certificate of Incorporation and CIN to the new Private Limited Company.
8. Post-Incorporation Requirements
a. PAN/TAN application
b. Open a company bank account
c. Update records with statutory bodies and clients
III. Comparative Analysis
Particulars | Private Limited Company | LLP |
Legal Structure | Company (Companies Act) | Partnership (LLP Act) |
Minimum Members | 2 Directors + 2 Shareholders | 2 Partners |
Compliance Burden | Higher | Lower |
Taxation | Dividend Tax applicable | No Dividend Tax |
Ownership Transfer | Easier | Restricted |
Audit Requirement | Mandatory (if applicable) | Only if the turnover exceeds ₹40 lakhs |
IV. Conclusion
The decision to convert from a Private Limited Company to an LLP or vice versa must be weighed carefully, keeping in mind business goals, investor preferences, taxation, and operational flexibility. While an LLP offers ease of compliance and tax efficiency, a company structure is often better suited for scalability, investor funding, and structured governance.
Each form entails its regulatory framework and procedural requirements; therefore, professional guidance is highly recommended during the transition. The Ministry of Corporate Affairs (MCA) has streamlined digital filing, but the accuracy of documents and procedural compliance remain critical to a smooth conversion.
Whether you’re simplifying business or aiming for structured growth, understanding both sides of the conversion coin helps make a strategic decision for your organization’s future.
For any clarifications or queries, please feel free to reach out to us at admin@fintracadvisors.com
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