Conversion of Private Limited Company to LLP in India

 Legal Framework for Conversion of Private Limited To LLP

Conversion of a Private Limited Company (Pvt Ltd) into a Limited Liability Partnership (LLP) in India is a legally governed process, involving multiple statutes and rules:

a) Limited Liability Partnership Act, 2008

• Schedule III – Prescribes the procedure for conversion of a company into an LLP.

• Section 39 – Defines post-conversion filing obligations with the Registrar of Companies (RoC).

b) Companies Act, 2013

• Section 366 – Allows a company to convert into an LLP, subject to LLP Act provisions.

• Sections 179, 180, 186 – Governs board/shareholder approvals, loans, and capital contributions.

c) Income Tax Act, 1961

• Section 47(xiiib) – Provides capital gains tax exemption on transfer of assets/liabilities from a company to LLP, if certain conditions are met.

d) LLP Rules, 2009

• Prescribe procedural forms, filing timelines, and compliance requirements:

  • Form FiLLiP – LLP incorporation application.

  • Form 18 – Conversion of company into LLP.

  • Form 3 – LLP agreement filing.

  • Form 9 – Consent of designated partners.

Eligibility Criteria

To qualify for conversion, the company must satisfy:

Criteria	Requirement
Company Type	Private Limited or unlisted public company
Share Capital	Must exist
Debt Restrictions	No secured loans or charges on assets
Statutory Compliance	All annual returns, financial statements, and filings up to date
Shareholder Consent	Unanimous agreement required
Designated Partners	Minimum 2, with at least 1 resident of India
Legal Standing	No unresolved litigation

Procedural Steps

Step 1: Board & Shareholder Approvals

Board Meeting:

• Approve conversion and authorize LLP name reservation filing.

Shareholder Consent:

• Special resolution in a general meeting.

• File Form MGT-14 within 30 days.

Caution:

• Ensure resolutions explicitly authorize conversion and appointment of authorized signatories.

Step 2: Name Reservation

• Apply via RUN-LLP on MCA portal.

• Attach board resolution; ensure uniqueness & compliance.

Caution:

• Reserved name valid for 20 days; prompt filing required.

Step 3: Filing Conversion Forms

Mandatory Forms:

1. Form FiLLiP – LLP incorporation application.

2. Form 18 – Conversion of company into LLP.

3. Form 9 – Consent of designated partners.

Documents to Attach:

• Shareholders & designated partners list

• Statement of assets & liabilities

• Auditor’s certificate confirming assets, liabilities, and capital contribution

• Board & shareholder resolutions

• Creditor consents (if applicable)

Caution:

• Auditor certificate mandatory for validating asset/liability transfer.

• Ensure creditor & contractual obligations are honored.

Step 4: RoC Verification & Certificate of Incorporation

• MCA/RoC verifies filings.

• Upon satisfaction, Certificate of Incorporation (CoI) issued for LLP.

Caution:

• Any discrepancies in forms or attachments may lead to rejection.

Step 5: Post-Conversion Compliance

• LLP Agreement: File Form 3 within 30 days.

• RoC Notification: File Form 14 within 15 days.

• Update registrations – PAN, TAN, GST, Shops & Establishment License, FSSAI, etc.

• Inform banks, suppliers, and clients.

• Complete transfer of assets & liabilities; maintain records.

Caution:

• Certain licenses may not automatically transfer; re-application may be required.

Tax Implications – Section 47(xiiib)

Objective: Exempt capital gains tax on transfer of assets and liabilities from the company to LLP.

Conditions for Exemption:

1. Company must be Pvt Ltd or unlisted public company.

2. All assets, including stock-in-trade, must transfer to LLP.

3. All shareholders become partners.

4. Shareholders receive only capital contribution; no other consideration.

5. Liabilities must transfer entirely.

6. Business must continue as a going concern.

7. All statutory returns & statements filed.

8. Company must not be Section 8 company.

Caution:

• Failure to meet any condition attracts capital gains tax; transfer treated as taxable.

Consequences of Non-Compliance:

• Taxable capital gains on transferred assets.

• Denial of Section 47(xiiib) exemption.

• Income may be deemed in hands of LLP or shareholders.

Additional Considerations:

• Asset valuation at book value recommended.

• Retain auditor certificates and approvals to substantiate exemption.

Key Documents Required

1. Board & shareholder resolutions approving conversion

2. Consent of shareholders and creditors

3. Latest audited financial statements

4. Latest income tax returns

5. Proof of identity & address of partners

6. Registered office proof and NOC

7. Auditor’s certificate confirming assets, liabilities, and capital contribution

Professional & Compliance Cautions

• Contracts & Agreements: Update all to reflect LLP status.

• Licenses & Registrations: Re-apply where necessary.

• Ongoing Litigation: Resolve or transfer legal matters appropriately.

• Shareholding to Partnership Ratio: Align with capital contributions.

• Timeline Adherence: Strict deadlines –

  • MGT-14: 30 days

  • Form 3: 30 days

  • Form 14: 15 days

• Expert Consultation: Legal & tax professionals to oversee compliance.

Summary Table: Steps vs Cautions

Step	Key Action	Caution Points
Board & Shareholder Approvals	Special resolutions & MGT-14 filing	Explicit authorization; creditor notification
Name Reservation	RUN-LLP filing	Name uniqueness; timeline validity
Conversion Forms	FiLLiP, Form 18, Form 9	Auditor certificate; complete documentation
RoC Verification	CoI issuance	Ensure no discrepancies; forms complete
Post-Conversion	Form 3, Form 14, update registrations	Licenses, contracts, stakeholder notifications
Tax Compliance	Section 47(xiiib) exemption	All conditions met; asset valuation; proper filings

Conclusion

Converting a Pvt Ltd to LLP offers:

• Reduced compliance burden

• Greater operational flexibility

However, the process involves strict adherence to legal, procedural, and tax compliances—especially for capital gains tax exemption under Section 47(xiiib). Careful planning, auditor involvement, and professional guidance are essential to ensure a smooth, compliant, and risk-free conversion.