Move to a simpler business structure to minimize complex compliance requirements.
An LLP merges the benefits of a partnership and a company, providing greater operational flexibility when converting from a private limited company. It functions as a separate legal entity with limited liability, but unlike a private company managed by directors, LLP operations are directly handled by its partners.
Governed by an LLP Agreement, it involves fewer compliances, making management simpler. This structure retains partnership advantages while offering the credibility and security of a corporate entity. Conversion from a private limited company to an LLP requires Ministry approval via an online application, supported by the necessary documents.
Partners in an LLP earn various types of returns, including remuneration, profit shares, and interest on capital. Remuneration compensates their active involvement in running the business, while profit shares reflect their portion of the business’s earnings.
No partner is liable for the unauthorized actions of other partners, ensuring that individuals are protected from being held accountable for the misconduct or wrongful decisions of their fellow partners.
LLPs require fewer compliances than Private Limited Companies. They are not mandated to maintain extensive statutory records, and the requirement for a statutory audit is relaxed.
In an LLP, partners actively manage day-to-day operations. Unlike a company, the LLP is governed by an LLP Agreement mutually agreed upon and executed by all partners.
Consent of all directors and shareholders of the company for conversion, submitted in the prescribed format.
No Objection Certificate (NOC) must be obtained from the tax authorities.
A complete list of all secured creditors, along with their consent, must be submitted.
The previous year’s financial statements, along with the filed Income Tax Return (ITR), must be submitted.
Digital Signature Certificates (DSCs) of all existing directors must be submitted.
PAN card, Certificate of Incorporation, GST registration, and any other relevant documents or registrations must be submitted.
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*Subject to Government processing time
Upon conversion of the company or partnership into an LLP, all tangible and intangible properties, assets, rights, privileges, liabilities, and obligations of the company or firm, along with its entire business undertaking, shall automatically transfer to and vest in the Limited Liability Partnership without the need for any additional assurance, act, or deed.
The Act states that upon conversion, any approval, permit, or license granted to the Private Company under any other law shall, subject to the provisions of that respective law, be transferred to the converted entity—i.e., the LLP. However, certain registrations, such as GST, may require a fresh application to be filed.
LLPs must file annual returns with the Registrar each year. However, if the LLP’s turnover is less than ₹40 lakhs and/or its capital contribution is below ₹25 lakhs, auditing of financial statements is not required.
A key difference between an LLP and a company lies in their internal governance structure. LLPs offer greater flexibility and have fewer compliance requirements compared to companies.
Yes, the LLP Act, 2008 permits Foreign Nationals, including foreign companies and LLPs, to incorporate an LLP in India, as long as at least one designated partner is a resident of India. However, the LLP and its partners must comply with all applicable Foreign Exchange laws, rules, regulations, and guidelines.
In the case of conversion to an LLP, the applicability of capital gains tax depends on specific conditions. Generally, the transfer of capital assets, intangible assets, or company shares by shareholders during the conversion is not subject to capital gains tax. However, if there is a change in shareholding or profit-sharing ratio, and any benefit arises from the conversion, capital gains tax may become applicable.
In most cases, the transferability of licenses depends on the terms and conditions of the specific license. If transfer is not permitted, the promoters will need to obtain fresh registrations, such as GST or FSSAI.
The application for PAN and TAN in the name of the LLP must be submitted after the Certificate of Incorporation is issued. The physical PAN card will be delivered to the registered office address once dispatched by the Income Tax Department.
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Convert proprietorship to LLP to leverage on added benefits with limited liability
