Conversion of LLP into Private Limited Company

Conversion of LLP To Private Limited Company is a tedious job and in this article, we will discuss the end of the compliance process.

Procedure for Conversion of LLP into Private Limited Company?

Numerous businesses started in India as Limited Liability Partnership (LLP), may now wish to convert into a Private Limited Company for more growth & development in business or for infusing equity capital. An LLP can be converted into a Private Limited Company in accordance with the provisions contained in section 366 of the Companies Act, 2013 & Company (Authorized to Register) Rules, 2014. However, there are numerous requirements which are essential to be satisfied for converting an LLP into a Private Limited Company. For example, an LLP having partners require approval from all the partners along with the advertisement in newspaper is to be done in a local & a national newspaper, a No Objection Certificate (NOC) is required from the ROC where such LLP is registered & then all the incorporation process has to be undertaken which includes as under.

Sadly before the introduction of Companies Act, 2013 conversion of LLP into a Company was not allowed as both the LLP, 2008 & the Companies Act, 1956 were not containing any enable provision for such conversions. However, it was the main obstacle to the implementation of LLP as an organizational form. Thus, with the introduction of Companies Act, 2013 this issue has been addressed up to some extent, which provides that any partnership firm, LLP, cooperative society, society or any other business organisation formed under any other law encompassing of 7 or more members, may at any time register under Companies Act, 2013 as an unlimited company, or as a company limited by shares, or a company limited by guarantee by following the procedure laid down in Companies (Authorized to Register) Rules, 2014.

Limited liability Partnership is the choice by the start-ups when they just need limited liability in the business & want to save the annual expense, audit expenses & incorporation charges. They don’t want to raise the funds from venture capital firms in the starting. Because there are many ways to raise money for the start-ups in India. Private Limited Company is selected over LLP by the startup when they want essential funding from an investor or already in process with the seed funding. Even on later stage these days start-up also offer shares to employees which is only possible in the case of Private limited company.

Process to be followed for Conversion of LLP into Private Limited Company

Before filing an application for Conversion of LLP into Private Limited Company, please ensure followings:

• That secured creditors have given their consent for such conversion;
• A notice in newspaper related to such conversion, one in English & in vernacular language seeking objections must be published;
• There is minimum seven or more members in the existing LLP for converting the LLP into a Company.
• A general meeting essential to be held where the majority of partners have given their accord for such conversion.

DIN & Digital Signature Certificate (DSC)

The proposed Directors of the Company after conversion, who are not holding any DIN then such DIN & Digital Signature Certificate for all the proposed Directors of the Company must be obtained. For obtaining DIN an application in Form No. DIR — 3 which must be filed on MCA Portal. Form No. DIR — 3 must be accompanied by self-attested Identity Proof & Address Proof & one recent passport size color photograph of the Applicant. Thus all the documents must be attested by a practicing professional viz. Practicing Cost & Management Accountant, practicing Company Secretary or practicing Chartered Accountant.

Name Approval

Name approval has to be approved by the Registrar of Companies (ROC) by providing an application in E-Form INC 1. One needs to decide various items, which are mentioned in Form INC 1. The name once approved by the authority is valid for a period of 60 days. The Subscriber to the Memorandum & Articles of Association shall be the applicant for the availability of name application.

Preparation & Filing of Form No. URC — 1

After obtaining name approval from the Registrar of Companies, the applicant shall prepare & file the Form No. URC — 1 along with the following documents -

• An attachment containing the names, addresses, & occupations of all persons named therein as members with details of shares held by them respectively, showing separately shares allotted for consideration in case & for consideration other than cash along with the source of consideration & distinguishing, in cases where shares are numbered, each share by its number, who on a day, not being more than six clear days before the day of filing this application, were partners of the Limited Liability Partnership;
• A list showing the particulars of persons proposed as the first directors of the Company, their names, including surnames or family names, the DIN, passport number (if any), residential addresses & their interests in other firms or bodies corporate along with their consent to act as Director of the Company;
• An affidavit from each of the persons proposed as the first directors, that he is not disqualified to be a director under section 164(1) & that all the documents applied with ROC for registering of the Company which shall comprise of information that is correct & complete & true to be best of his knowledge & belief;
• An attachment comprising the names & addresses of the Partners of the Limited Liability Partnerships;
• A Copy of LLP Agreement & Certificate of Registration duty verified by at least two designated partners of LLP;
• A statement specifying the following particulars; a) the nominal share capital of the company & the number of shares into which it is divided; b) the number of shares kept & the amount paid on each such share; c) the name of the company, with the addition of the word ‘Limited’ or ‘Private Limited’ as the case may require, as the last word or words thereof;
• No Objection Certificate (NOC) or a Written consent or from all the secured creditors of the applicant;
• In accordance with section 366 of the Companies Act, 2013, a consent in writing from the majority of members whether present in person or by proxy at a general meeting agreeing for registration;
• An affidavit duly notarized, from all the members or partners providing that in the event of registration as a company under Part I Chapter XXI of the Companies Act, 2013, essential documents or papers will be submitted to the registering or other authority with which the company was earlier registered, for this dissolution as Limited Liability Partnership;
• Statement of accounts of the company prepared not later than 6 days preceding the date of application duly certified by auditor, if applicable;
• Declaration of two or more directors verifying the particulars of all members/partners;
• Copy of Newspaper advertisement
• Certificate from a Company Secretary in Practice/Cost Accountant in Practice/Chartered Accountant in Practice certifying the compliance with all the provisions of Stamp Act, to the extent applicable;
• No objection certificate from the concerned Registrar of LLP.

Memorandum & Articles of Association:

After obtaining name approval, & approval of Form No. URC — 1 from the Registrar, the draft Constitutional Documents of proposed Company i.e. Memorandum of Association (MOA) & Articles of Association (AOA) is to be drafted & then filed with the ROC along with the forms/documents stated below.

Subscription of the Pages of Memorandum of Association (MOA) & Article of Association (AOA) — The last page of the MOA & AOA must contain details of the subscribers to the Memorandum & Articles & the number of shares to be subscribed by each. This last page is required to be executed by subscribers.

Filing of Incorporation Forms:

The subsequent forms are obligatory to be filed with the Registrar:

• Filing of E-Form INC 7 which is the declaration of compliance with the requirements of the Act on application for registration of a company;
• Filing of E-Form INC 22 which is the notice of situation of registered office;
• Filing of E-Form DIR 12 which is related to appointment of directors of the company; &
• Consent by the promoters of the company to individuals to transmit out suitable changes as recommended by the Registrar in any of the incorporation papers that have been filed, by implementing a Power of Attorney by subscribers & proposed directors.
• Clarifications/Additional Information Required By ROC;
• After all the incorporation papers are filed & reviewed by the ROC, the ROC may require certain clarifications. Such clarifications or inquiry require being fulfilled by the individual who has been authorized to do so by the Power of Attorney filed with the ROC.

Certificate of Incorporation:

After all the clarifications are delivered, the Certificate of Incorporation (COI) is delivered by the ROC & the company is deemed to be incorporated from the date of the COI.

In accordance with Section 367 of the Companies Act, 2013, after obtaining the registration, an intimation to this effect will be given, within a period of 15 days of such registration to the concerned Registrar (LLP) under which it was initially registered, along with essential documents or papers for its dissolution as LLP.

Conclusion

However, in accordance to Section 366 of the Companies Act, 2013 which delivers that the present LLPs has an option to convert themselves in a Company, which is one of the welcome steps by the Ministry of Corporate Affairs (MCA). However, there are certain provisions such as the requirement of having minimum 7 or more members is restricting LLPs with fewer partners from conversion & any LLP having less number of partners willing to convert itself into Company must increase its number of partners, which is somewhat minor businesspersons are not comfortable with. Thus the requirement of minimum 7 members is one of the major obstacle/difficulty in conversion into Company form of business. Administration or Government must initiate with the amendment in rules to allow LLPs with 2 partners for conversion into Company. Click here to know more about it.