ARE THERE ANY PROVITION FOR THE COMPANY CONVERSION OF A COMPANY TO LLP?
INTRODUCTION OF COMPANY CONVERSION OF A COMPANY TO LLP
Company conversion to Limited Liability Partnership (LLP) is a legal process in which an existing company transforms into an LLP. This conversion allows the company to benefit from the flexibility of an LLP structure while retaining certain advantages of being a corporate entity. Here is an introduction to the process of converting a company into an LLP:
PROCESS TO COMPANY CONVERSION OF A COMPANY TO LLP
Step 1: Check Eligibility:
- Ensure that your existing company is eligible for conversion. Generally, private limited companies and unlisted public companies can convert to LLPs.
Step 2: Obtain Shareholders’ Approval:
- Hold a board meeting to obtain the consent of shareholders through a special resolution. A minimum of 3/4th of the shareholders’ consent is typically required.
Step 3: Name Availability and Reservation:
- Check the availability of the desired LLP name with the Ministry of Corporate Affairs (MCA) and reserve it by filing Form 1 with the Registrar of Companies (RoC).
Step 4: Application Filing (Form URC-1):
- File Form URC-1 (Application by a Company for Registration under LLP Act) with the RoC. Along with this form, submit the following documents:
- Copy of the consent of shareholders.
- Copy of the approval of authorities, if required.
- Statement of assets and liabilities of the company, certified as true and correct by the auditor.
- Incorporation documents of the company (Memorandum of Association and Articles of Association).
- Statement of shareholders’ solvency.
Step 5: No Objection Certificate (NOC):
- Obtain a No Objection Certificate (NOC) from all existing creditors of the company. This NOC should state that the creditors have no objections to the conversion.
Step 6: Publication of Notice:
- Publish a notice in newspapers (one in English and one in a vernacular language) informing the public about the company’s conversion to an LLP. This notice should be for the awareness of creditors and others who may have dealings with the company.
Step 7: Consent of Registrar:
- The RoC reviews the application and documents submitted. If satisfied, the RoC issues a Certificate of Incorporation for the LLP. This certificate signifies the completion of the conversion process.
Step 8: Transfer of Assets and Liabilities:
- After receiving the Certificate of Incorporation for the LLP, the assets and liabilities of the company automatically become the assets and liabilities of the LLP. Any agreements, contracts, or licenses the company had are transferred to the LLP.
Step 9: Intimation to Other Authorities:
- Inform various authorities, such as the income tax department, GST department, banks, and other statutory bodies, about the conversion and provide them with the necessary documents and information.
Step 10: Compliance Post-conversion:
- Ensure that the LLP complies with the ongoing requirements under the Limited Liability Partnership Act, such as filing annual returns and maintaining statutory records.
ADVANTAGES TO COMPANY CONVERSION OF A COMPANY TO LLP
Limited Liability: The liability of LLP partners is limited to their agreed-upon contribution, protecting their personal assets from business liabilities.
Separate Legal Entity: An LLP is a distinct legal entity from its partners. This separation provides certain legal benefits and protects the personal assets of partners.
Tax Benefits: LLPs often enjoy tax advantages, including tax exemption on capital gains. They are also subject to lower tax rates compared to some corporate structures.
Flexible Management Structure: LLPs have a more flexible management structure than traditional companies. Partners can define roles and responsibilities as per their requirements.
Ease of Compliance: Compliance requirements for LLPs are generally less burdensome than for companies. There is no requirement for a board of directors, annual general meetings (AGMs), or other corporate formalities.
Transfer of Ownership: Transferring ownership or adding/removing partners is relatively straightforward in an LLP compared to a company.
Profit Distribution: LLPs allow for flexible profit-sharing arrangements among partners, which can be beneficial for various business models.
No Minimum Capital Requirement: There is no minimum capital requirement for LLPs, making them accessible to startups and small businesses.
DISADVANTAGES TO COMPANY CONVERSION OF A COMPANY TO LLP
Change in Legal Structure: The conversion process involves significant changes in the legal structure, which may require adjustments in business operations and contractual relationships.
Compliance with LLP Act: While compliance is generally simpler for LLPs, it is still essential to adhere to the provisions of the Limited Liability Partnership Act, which may have its own requirements.
Transfer of Contracts: Transferring existing contracts, licenses, and agreements from the company to the LLP can be administratively challenging.
Public Perception: Some stakeholders may perceive LLPs as less established or reputable compared to traditional companies, potentially affecting business relationships.
Taxation: While there are tax advantages, the tax implications of the conversion should be carefully considered and evaluated, as they may vary based on the specific circumstances.
Restrictions on Foreign Investment: LLPs may have restrictions on foreign investment, which can limit international expansion opportunities.
Statutory Compliance Costs: Although compliance requirements are generally simpler, there may still be costs associated with maintaining records and filing annual returns.
Restrictions on Capital Raising: LLPs may face limitations when it comes to raising capital through equity offerings or attracting certain types of investors.
CONCLUSION TO COMPANY CONVERSION OF A COMPANY TO LLP
Conversion of a company to an LLP is a strategic decision that offers several benefits, including limited liability, tax advantages, and a more flexible business structure. However, it’s essential to follow the legal procedures meticulously and obtain the necessary approvals and clearances before completing the conversion process. Consulting with legal and financial experts is advisable to ensure a smooth and compliant transition from a company to an LLP.
HOW AURIGA ACCOUNTING HELP YOU TO COMPANY CONVERSION OF A COMPANY TO LLP
Expert Guidance: Auriga Accounting has experienced professionals who are well-versed in corporate and tax laws, including the regulations governing company-to-LLP conversions. They can provide expert guidance on the legal and procedural aspects of the conversion.
Due Diligence: Auriga Accounting can conduct a thorough due diligence process to assess the eligibility of your company for conversion to an LLP. This involves reviewing the company’s financial records, contracts, and compliance history to ensure a smooth transition.
Documentation Preparation: Auriga Accounting can assist in preparing and organizing all the necessary documentation required for the conversion process, including resolutions, consent letters, and financial statements.
Name Reservation: Auriga Accounting can help you check the availability of the desired LLP name, reserve it, and ensure that it complies with the naming guidelines of the Ministry of Corporate Affairs.
Application Filing: Auriga Accounting can prepare and file the conversion application, Form URC-1, with the Registrar of Companies (RoC) on your behalf. They will ensure that all required documents are correctly attached to the application.
No Objection Certificates (NOCs): Auriga Accounting can guide you in obtaining the necessary No Objection Certificates (NOCs) from creditors and other stakeholders, as required by the conversion process.
Publication Requirements: Auriga Accounting can assist with fulfilling the legal requirement of publishing conversion notices in newspapers, ensuring that all formalities are met.
Registrar’s Approval: Auriga Accounting can liaise with the RoC and regulatory authorities, as needed, to obtain the necessary approvals and clearances for the conversion.
Transfer of Assets and Liabilities: Auriga Accounting can help facilitate the transfer of assets and liabilities from the company to the LLP, ensuring that all legal requirements are met during this process.
Compliance Post-conversion: After the conversion is complete, Auriga Accounting can continue to provide support in maintaining LLP compliance, including filing annual returns and adhering to statutory requirements.
