How to Convert a Private Limited Company into an LLP: Process & Eligibility

Key Takeaways

• Legal basis: Conversion is governed by Schedule III and Section 58 of the LLP Act, 2008, with tax implications under Section 47(xiiib) of the Income Tax Act, 1961.
• Timeline: The full process takes 10 to 15 working days, subject to MCA approval.
• Key forms: FiLLiP (incorporation), Form 18 (conversion application), Form 9 (partner consent), Form 3 (LLP agreement), and Form 14 (intimation to ROC).
• Eligibility: All shareholders must become partners in the same profit-sharing proportion, and the company must have no subsisting charges or pending ROC filings.
• Tax-neutral conditions: Total assets must not exceed ₹5 crore in any of the 3 preceding financial years, and turnover must not exceed ₹60 lakh in any of those years.
• Trade-offs: LLPs cannot raise equity, issue ESOPs, or list publicly, making conversion unsuitable for fundraising-stage startups.

Why Convert Your Private Limited Company into an LLP?

Most businesses make this shift when running a Pvt Ltd starts costing more, in time, money, and paperwork, than it’s worth. It’s a move that makes most sense for closely held companies, startups, and service firms that no longer need external funding or complex corporate structuring. 

Key Benefits of Private Limited to LLP Conversion:

1. Reduced Compliance Burden: A Private Limited company must conduct board meetings, maintain statutory registers, and file multiple annual returns. In contrast, an LLP requires only two annual filings, Form 11 and Form 8. This significantly reduces compliance effort and administrative burden.

2. Lower Administrative and Operational Costs: Companies incur higher costs due to mandatory audits, secretarial compliance, and regulatory filings. LLPs reduce these expenses by minimizing compliance requirements and governance formalities.

3. Greater Operational Flexibility: Partners in an LLP can define roles, responsibilities, and profit-sharing ratios through the LLP Agreement. They do not need formal board approvals to make internal decisions.

4. No Mandatory Audit (for Small LLPs): An LLP is exempt from mandatory statutory audit if its annual turnover does not exceed ₹40 lakh or its total capital contribution does not exceed ₹25 lakh, as per Rule 24(8) of the LLP Rules, 2009. This provision helps reduce compliance requirements and lowers operational costs for small businesses. 

5. Seamless Business Continuity: During the Private Limited to LLP conversion, all assets, liabilities, contracts, and obligations automatically transfer to the LLP. This transfer is governed under Section 47(xiiib) of the Income Tax Act, 1961, read with Schedule III of the LLP Act, 2008. The business continues without disruption.

Legal Provisions Governing the Conversion Process

The Private Limited to LLP conversion process is governed by the Limited Liability Partnership Act, 2008, along with the rules framed under it. Businesses must follow these provisions to ensure a legally valid and compliant transition:

• Schedule III of the LLP Act, 2008: Governs the conversion of a Private Limited company into an LLP. It defines eligibility, required documents, and the process, and ensures the transfer of all assets, liabilities, rights, and obligations to the LLP.
• Section 58 of the LLP Act, 2008: Covers the registration and legal effect of conversion. Once approved, the LLP is incorporated, the company is dissolved, and all assets and liabilities vest in the LLP.
• LLP Rules, 2009: Prescribe procedural requirements, including filing forms such as FiLLiP, Form 18, and Form 9, to ensure a compliant conversion process.
• Income Tax Act, 1961 {Section 47(xiiib)}: Allows tax-neutral conversion if conditions are met. These include full transfer of assets and liabilities, continuity of ownership, and no additional consideration beyond profit-sharing rights.

Eligibility Criteria for Private Limited to LLP Conversion

Before starting a Private Limited to LLP conversion, a company must meet certain legal conditions under the LLP Act, 2008:

• All shareholders must become partners in the LLP, and their profit-sharing ratio must be in the same proportion as their shareholding in the company.
• No new partner can be added during the conversion process.
• The company must have no subsisting security interest or charges on its assets.
• The company must obtain consent from all shareholders and creditors.
• It must have filed all pending ROC returns and financial statements.
• The LLP must have at least two designated partners, with at least one resident in India.

Checklist for Conversion of Private Company to LLP

Before initiating the conversion, run through this checklist to avoid rejection or delays:

Pre-conversion legal checks

• All annual ROC returns (MGT-7, AOC-4) are filed up to the latest financial year
• No subsisting security interest, charges, or pledges on company assets
• No pending litigation that affects asset ownership
• No outstanding tax dues with the Income Tax Department

Shareholder & partner readiness

• Written consent obtained from all shareholders
• All shareholders are willing to become LLP partners in the same proportion
• At least 2 designated partners, with at least one Indian resident
• DPIN/DIN ready for all designated partners

Creditor & financial readiness

• Written no-objection certificate (NOC) from all secured creditors
• The latest audited balance sheet and profit & loss statement are available
• The latest filed income tax return acknowledgment available

Document & form readiness

• Board resolution drafted and passed
• LLP Agreement drafted (partner roles, profit-sharing, capital contribution)
• DSC issued for all designated partners
• LLP name reserved via RUN-LLP (or proposed in FiLLiP)
• Registered office proof and NOC from the owner are ready

Documents Required to Convert Private Limited to LLP 

To facilitate the LLP conversion process, prepare the following documents:

• Board Resolution: Approve the conversion and authorize a director to initiate the process.
• Consent of Shareholders and Creditors: Obtain written approval from all shareholders and creditors.
• Incorporation Documents: Provide the Certificate of Incorporation (CoI), Memorandum of Association (MoA), and Articles of Association (AoA).
• LLP Agreement: Draft an agreement defining partner roles, profit-sharing ratio, and operational terms.
• Financial Statements: Submit the latest audited balance sheet and profit & loss account.
• Income Tax Return Acknowledgment: Provide a copy of the most recent income tax return filed.
• PAN and GST Details: Submit PAN and GST registration certificate, if applicable.
• Identity and Address Proof of Partners: Provide PAN, Aadhaar, passport (if applicable), and address proof of all designated partners.
• Registered Office Proof: Submit address proof of the LLP’s registered office along with NOC from the owner, if applicable.

How to Convert a Private Limited Company to LLP? (Step-by-Step Procedure) 

Follow this procedure for the conversion of a Private Limited company to an LLP:

Step 1. Pass Board Resolution: Hold a board meeting and pass a resolution approving the Private Limited to LLP conversion. Authorize a director to complete the process.

Step 2. Reserve LLP Name: File Form RUN-LLP on the MCA portal to reserve your name before filing FiLLiP. This locks it for 90 days and is the safer route. Alternatively, you can propose the name directly within FiLLiP, but a rejection there means re-filing the entire form. Use RegisterKaro’s free company name search tool to check availability beforehand.

Step 3. Obtain Digital Signatures and Partner Consent: Obtain a valid Digital Signature Certificate (DSC) for all designated partners. Take their consent to act as partners through Form 9.

Step 4. File Incorporation Form (FiLLiP): File the FiLLiP form for LLP incorporation. Provide partner details, registered office address, and supporting documents.

Step 5. File Conversion Application (Form 18): Submit Form 18 along with FiLLiP to apply for the conversion of a Private Limited company to an LLP. Include details of shareholders, assets, liabilities, and approvals.

Step 6. Certificate of Registration: The Registrar reviews the application and issues a Certificate of Registration. The company has converted into an LLP from this date.

Step 7. Execute and File the LLP Agreement (Form 3): Draft the LLP Agreement defining partner roles, profit-sharing ratios, capital contributions, decision rights, and exit terms. File the executed agreement in Form 3 with the MCA within 30 days of LLP incorporation. Failure to file Form 3 within this window attracts a daily penalty of ₹100 with no upper cap.

Step 8. File Form 14 with the Registrar of Companies: Within 15 days of receiving the Certificate of Registration as an LLP, file Form 14 with the Registrar of Companies (RoC) where the original Private Limited Company was registered. Form 14 formally notifies the RoC about the conversion and ensures the company is struck off from the Register of Companies.

The complete Private Limited to LLP conversion process typically takes 10 to 15 working days, depending on document accuracy and MCA approval cycles.

Post-Conversion Compliances for LLPs

After completing the Private Limited to LLP conversion, the LLP must complete certain legal, tax, and operational formalities:

• Apply for PAN and TAN: Obtain a new PAN and TAN in the name of the LLP, as the company’s PAN becomes invalid after conversion.
• Open a Bank Account: Open a bank account in the LLP’s name and transition all business transactions to it.
• Update GST and Other Registrations: Amend GST registration, licenses, and statutory registrations to reflect the LLP structure.
• File LLP Agreement (Form 3): File the LLP Agreement with the Registrar within 30 days of incorporation.
• File Annual Returns: File Form 11 (Annual Return) and Form 8 (Statement of Accounts and Solvency) every year.
• File Income Tax Returns: File income tax returns as an LLP and comply with applicable tax provisions.
• Update Business Records: Update invoices, letterheads, signboards, websites, and official documents with the LLP name.
• Inform Stakeholders: Notify customers, vendors, banks, and other stakeholders about the conversion.
• Update Contracts and Assets: Transfer and update existing contracts, registrations, and intellectual property in the LLP’s name.

What are the Tax Implications of Private Limited to LLP Conversion?

The tax implications of Private Limited to LLP conversion depend on whether the company satisfies the conditions prescribed under Section 47(xiiib) of the Income Tax Act, 1961. If these conditions are met, the conversion remains tax-neutral; otherwise, tax liabilities may arise.

• LLP Taxation Rate: An LLP pays income tax at a flat rate of 30% plus applicable surcharge and cess.
• No Dividend Distribution Tax (DDT): LLPs do not pay Dividend Distribution Tax. Partners receive profit shares that are exempt from tax, while remuneration and interest are taxable in their hands.
• Tax-Neutral Conversion (Section 47(xiiib)): The conversion does not attract capital gains tax if all conditions under Section 47(xiiib) are satisfied, including full transfer of assets and liabilities, continuity of ownership, and no additional consideration. The company’s total assets must also not exceed ₹5 crore in each of the three financial years immediately preceding the conversion.
• Capital Gains Tax (If Conditions Not Met): If the prescribed conditions are not satisfied, the conversion is treated as a transfer, and capital gains tax applies.
• No Carry Forward of MAT Credit: LLP cannot claim the Minimum Alternate Tax (MAT) credit accumulated by the company. The MAT credit lapses permanently after the conversion and cannot be utilized or transferred to the LLP in any form.
• Carry Forward of Losses: The LLP can carry forward business losses and unabsorbed depreciation only if it meets the conditions for tax-neutral conversion.

Section 47(xiiib) – Conditions for Tax-Neutral Conversion

The conversion of a Private Limited Company to an LLP is tax-neutral only if all of the following conditions are met:

1. All assets and liabilities of the company immediately before conversion become the assets and liabilities of the LLP.
2. All shareholders of the company become partners of the LLP in the same proportion as their shareholding.
3. Shareholders do not receive any consideration other than profit-sharing rights and capital contributions in the LLP.
4. The shareholders’ aggregate profit-sharing in the LLP must not be less than 50% for 5 years from the date of conversion.
5. The company’s total sales/turnover/gross receipts must not exceed ₹60 lakh in any of the 3 preceding financial years.
6. The company’s total value of assets as per books must not exceed ₹5 crore in any of the 3 preceding financial years.
7. No accumulated profits of the company are paid to any partner directly or indirectly for 3 years from the conversion date.

If any condition is breached even after conversion, the tax exemption is reversed, and the LLP becomes liable for capital gains tax in the year of breach.

When You Should NOT Convert from Private Limited to LLP

Conversion isn’t always the right call. Hold on to your Private Limited Company structure if any of these apply:

❌ You plan to raise external funding

VCs, angel investors, and institutional funders almost universally prefer Pvt Ltd structures because LLPs cannot issue equity shares. Conversion effectively closes the door on traditional fundraising.

❌ You rely on ESOPs to attract talent

LLPs cannot issue Employee Stock Option Plans. If equity-based compensation is part of your hiring strategy — common in startups — conversion permanently removes that option.

❌ Your turnover crosses ₹40 lakh or capital exceeds ₹25 lakh

At this scale, LLPs require mandatory statutory audits anyway, which neutralises one of the biggest compliance advantages of converting.

❌ You have pending litigation or open charges

Unresolved legal disputes, outstanding creditor dues, or open RoC charges can delay or completely block the conversion process. Resolve these first.

❌ You have foreign investment

LLPs face FEMA restrictions on FDI in certain sectors, particularly those requiring a government approval route for FDI. A Pvt Ltd structure offers broader and more flexible foreign investment eligibility.

❌ You’re planning a public listing or IPO

LLPs cannot list on stock exchanges (main board or SME platforms). If an IPO is in your 5-year plan, stay with the Pvt Ltd structure or convert to a Public Limited Company instead.

Can a Private Limited Company Give a Loan to an LLP?

Yes, a Private Limited Company can give a loan to an LLP, but the transaction is regulated under Sections 185 and 186 of the Companies Act, 2013. The legality depends on whether the LLP has any common directors, partners, or shareholders with the lending company.

When the loan is permitted (without special approval):

• The LLP and the company have no common interested directors (i.e., a director of the company is not a partner in the LLP)
• The loan is given in the ordinary course of business, with interest at or above the prevailing G-Sec rate
• The total exposure stays within the Section 186 limits (60% of paid-up capital + free reserves + securities premium, OR 100% of free reserves + securities premium, whichever is higher)

When special approvals are required:

• If the LLP has a partner who is also a director of the lending company → Section 185 prohibits the loan unless covered under specific exceptions
• If the loan exceeds Section 186 thresholds → prior special resolution of shareholders is required
• Mandatory disclosures in the Board Report and Notes to Financial Statements

Companies must document the loan through a formal board resolution, a written loan agreement, and proper TDS deduction under Section 194A on interest payments.

LLP vs Private Limited Company: Quick Comparison

Choosing between an LLP and a Private Limited company depends on your business goals, compliance capacity, and funding needs. 

The table below highlights the key differences to help you decide:

Feature	LLP	Private Limited Company
Legal Structure	Partnership-based with limited liability	Separate legal entity with shareholders
Liability	Limited to partner contribution	Limited to shareholding
Compliance	Lower — only Form 11 and Form 8 annually	Higher — multiple annual filings
Audit Requirement	Not mandatory below ₹40 lakh turnover or ₹25 lakh contribution	Mandatory (statutory audit)
Taxation	Flat 30% + surcharge & cess	Corporate tax (22%/25%/30%) — no DDT post-2020
Profit Distribution	Directly to partners (tax-exempt under Section 10(2A))	Through dividends (taxable in shareholders’ hands)
Management	Managed by designated partners	Managed by the Board of Directors
Equity Funding	Not possible — cannot issue shares	Can raise equity from VCs, angels, public
ESOPs	Not permitted	Allowed
Public Listing	Not eligible	Eligible (after conversion to Public Ltd)
Foreign Investment	Allowed under FEMA (with conditions)	Allowed under automatic/approval routes
Regulatory Disclosure	Minimal	High — public disclosures required

Still unsure whether an LLP or a Private Limited company suits your business? Connect with RegisterKaro’s experts for personalized guidance based on your goals, compliance needs, and growth plans. If you’re exploring the reverse process, you can also learn about LLP to Private Limited company conversion. 

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