Conversion of Company into LLP

admin 11-02-2021 00:38:08

Conversion of Company into LLP is a sort of issue because LLP have a certain amount of benefit over other companies:

  • LLP does not have to pay the Dividend Distribution Tax which is to be paid by the companies and LLP save MAT tax and income tax due to interest and remuneration payable to partner.
  • LLPs are easier to form run and manage.
  • Management of funds depend entirely on the members ‘wish.
  • The LLP can have any desire number of shareholders, however the maximum number of shareholder is fixed in private company.
  • The internal structure of an LLP can be easily handled in comparison to that of other companies.

Requirement for Conversion:

Every member of the company must agree with the decision of conversion.

All the member become the partners of an LLP.

Not just the members, all the creditors of the company must also agree with the conversion.

The latest copy of Income tax return is to be filed with ROC.

Under Companies Act, should have been initiated procedure to be followed:

  • Obtain DPIN (Form DIR-3)
  • Meeting of board of director of the company
  • File Form-1
  • Draft the LLP Agreement
  • File Form-2 for Incorporation Documents
  • File Form-18
  • File Form-3
  • Obtain the certificate of incorporation
  • File Form-14 with the Registrar 

Important Points: As per sec 47 of the Income Tax Act, 1961, Conversion of the Company in to LLP will not affect the capital gain tax if all the condition are satisfied:

  •  All the assets and liabilities of the company shall become the assets and liabilities of the LLP.
  • Total sales, gross receipts and turnover in any of the three preceding year from the date of the conversion does not exceed Rs. 60 Lakhs.
  • Shareholder of the company shall have at least 50% of the aggregate of the profit sharing ratio in LLP during the period of five years from the date of conversion.
  • Total assets as appearing in the books of the account of the company in any of the previous three years does not exceed Rs. 5 crore.
  • All the shareholder of the company become partners of the LLP and the capital proportion and profit sharing ratio are in the same proportion as that of the shareholding in the company.

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