Due to their numerous benefits, LLP companies are very common, as they are said to combine the business structures of both a company and a partnership. LLP has a reputation for combining flexible partnerships with company benefits. The LLP, or Limited Liability Partnership, is nothing but a legal body that offers limited liability to partners. The LLPs are capable of making LLP agreements and owning property in their own names, which is why many companies convert conversion of Private companies into LLPs. In this article, we shall see how the conversion of a private company to an LLP works and the steps and procedures to be followed for a successful Pvt. Ltd. to LLP conversion.
In the year 2008, the LLP Act introduced a brand-new, simple method for managing businesses with less compliance, which also lowered costs and was said to offer financial advantages to people starting their own businesses, small businesses, etc. It is not easy to run a business without hassles and in a cost-effective way. Here is what one needs to do to convert a private company to an LLP one.
Below mentioned documents are mandatory for the conversion of the private limited company to an LLP:
Having all of the above, how do you know that your company is eligible for conversion of private ltd to an LLP?
A private limited to LLP conversion is possible when:
The costs incurred to undergo the conversion of a private company to an LLP are as follows:
The next step is to inform your registrar about the conversion of your private company to an LLP; this has to be done within a period of 15 days from the day of conversion by submitting Form 14. After the necessary procedures are completed, the registrar will then issue your registration certificate. If properties are being registered in the company's name, the LLP must inform the relevant officials of the conversion details and provide them with the LLP's information.
Under the IT Act, the conversion of a private company to an LLP will not attract capital gains tax under the following conditions:
Below are some of the effects faced on the conversion of a private limited company to an LLP:
After reviewing if all of the above is in order, here is how the conversion of a private limited company to an LLP takes place:
A board meeting will be necessary to discuss the conversion plan. The board must accept the conversion of the private limited company into an LLP and any director's application for the name of the LLP.
In this meeting, the board resolution to convert a private limited company to an LLP will be passed.
Within 30 days of the general meeting's adoption of decisions, submit Form MGT-14. The required attachments for E-form 14 are
A copy of the board's decisions, members' resolutions, and general meeting notices are to be attached
The business must submit Form RUN-LLP of the LLP to reserve its name and obtain a Certificate of Name Approval from ROC.
The form filling is as follows:
File an electronic form; From-18 with ROC, alongside the below-mentioned:
Obtain the Registration Certificate of Conversion.
The LLP Agreement, which was executed at the time of formation, must be specified in electronic Form 3 within 30 days of the Certificate of Registration.
The contents of draft agreement are
The following documents are required, along with information about the LLP Agreement and any modifications made thereto:
The benefits gained by the conversion of private limited companies to LLPs under Income Tax:
Here are some of the IT benefits gained
Before, Financial bill that was passed in the year 2010, there have been a lot of misconceptions and a lack of transparency about converting a private limited company to an LLP. During 2010, the Ministry of Finance addressed issues pertaining to the above, and the amendments for these conversions took effect over the years 2011-2012. Once the Finance Ministry addressed the issues, the conversion of private limited companies to an LLP has been carried forward by many without any hassles.
The time taken for conversion of a private company to an LLP can range on an average between 1 to 2 months. That is because there are 3 sets of approval needed from government entities. The first is for confirmation of the name, the second approval is for incorporation and conversion. This approval is for LLP Agreement. So depending on the government authorities and the formalities therein, the timeline can vary.
Yes. LLPs avoid double taxation that applies to a few corporate entities. Profits arising from partnerships are taxed on the partners' personal tax returns.
The threshold for GST registration in India is set at an annual turnover of Rs. 40 lakhs or greater for businesses. Those businesses in special category states have a threshold of Rs. 20 lakhs. If the turnover for LLP is below the mentioned threshold, GST registration may not be needed.
An LLP can be made with as minimal an amount as possible, as there is no minimum capital requirement. Also, the capital contribution can be intangible property, movable, tangible or immobile property.
A flat 30% income tax rate is levied on LLPs and Partnership firms. A 2% Education Cess and 1% SHEC also need to be paid along with income tax.
Yes. GST is applied only when the annual aggregated turnover exceeds 20 lakhs. In 11 special category states, it is Rs 10 lakhs.
Some of the tips for avoiding tax on LLP are:
No. It is not mandatory for LLP to deduct TDS under the U/S 194C of the Income tax act.