How to Convert a Private Limited Company into an LLP?

For many small businesses in India, managing a Private Limited Company (Pvt Ltd) can feel like juggling too many things at once. From endless board meetings to complicated tax returns, compliance can often feel like a heavy burden.

According to a 2023 survey by the Ministry of Corporate Affairs (MCA), over 68% of small businesses found the compliance load of Pvt Ltd companies cumbersome. But, there’s a solution that’s becoming increasingly popular, ie, converting a Private Limited Company into an LLP.

Converting from a Private limited company into an LLP can feel like upgrading your business. Imagine a business structure where you maintain limited liability protection, enjoy operational flexibility, and reduce your compliance costs.

Why Convert Your Private Limited Company into an LLP?

Take the case of TechWave Innovations, a SaaS startup based in Pune. In 2023, they decided to convert their Private limited company into an LLP. This decision reduced their annual compliance costs by ₹1.2 lakh and saved the company 20% in taxes by avoiding the Dividend Distribution Tax (DDT).

Major Reasons to Convert:

1. Limited Liability Protection: As in a Pvt Ltd company, the liabilities of partners in an LLP are limited to their contribution. This ensures personal assets are protected from business-related liabilities.
2. Compliance Reduction: Unlike Pvt Ltd companies, which need to file multiple forms, LLPs are only required to submit two annual filings—Form 11 and Form 8. This significantly reduces the administrative burden.
3. Tax Efficiency: LLPs don’t pay Dividend Distribution Tax, saving up to ₹2 lakh on ₹20 lakh profit. Profits are taxed only in the hands of the partners at a flat rate of 30%.
4. Operational Flexibility: LLPs don’t require board meetings or resolutions to change the profit-sharing ratio, making it easier to manage the business.
5. No Mandatory Audit: For LLPs with turnover under ₹40 lakhs, there’s no need for audits, reducing unnecessary costs.

Legal Provisions Governing the Conversion Process

The conversion of a Private Limited Company into an LLP is governed by the Limited Liability Partnership Act, 2008, and must follow the provisions laid out in Schedule III. Additionally, the Companies Act, 2013 (Section 366) and LLP Rules, 2009 provide detailed guidelines for conversion.

Key Legal Provisions:

• Section 366 of the Companies Act: Requires a No Objection Certificate (NOC) from creditors and shareholders, along with a solvency declaration by the directors.
• Section 58 of the LLP Act, 2008: Requires the filing of Form 17 (application for conversion) and Form 18 (incorporation form).
• Tax Implications: As per CBDT Circular 4/2023, the conversion will be tax-neutral if the assets are transferred at book value.

Eligibility Criteria for Conversion

Your Pvt Ltd can only convert into an LLP if:

1. Shareholder Approval: All shareholders must approve the conversion with a unanimous board resolution.
2. Free of Liabilities: The company must have no pending litigation or charges against its assets.
3. Compliance Status: The company must have filed all financial statements and annual returns with the Registrar of Companies.
4. Turnover: There is no specific turnover limit, but companies with a turnover under ₹100 crore can benefit from a simplified process.

Documents Required for the Conversion Process

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

1. Board Resolution approving conversion (drafted by a CS).
2. No Objection Certificates (NOCs) that require written approval from creditors and shareholders, and their consent.
3. LLP Agreement outlining profit-sharing, roles, and dissolution terms.
4. PAN, GST, and Incorporation Certificates.
5. Audited Financials, like balance sheet and profit & loss account for the last 2 years, and acknowledgement of the most recent income tax return filed.
6. Address Proof: Proof of the registered office address of the LLP.

Step-by-Step Process to Convert a Private Limited Company into an LLP

Converting a Private Limited Company into an LLP requires following a systematic legal process under the LLP Act, 2008. Here are the key steps:

Step 1: Board Resolution

Hold a board meeting to pass the conversion proposal approving the conversion and authorising a director to handle the process.

Step 2: Reserve the LLP Name

File Form RUN LLP (Reserve Unique Name) on the MCA portal (mca.gov.in) to secure the proposed LLP name. Attach the Board Resolution passed for conversion.

• Ensure that the proposed LLP name is not identical or similar to any existing company or trademark to avoid rejection.

Step 3: File Conversion and Incorporation Forms

Once the LLP name is approved, file the required forms:

• eForm 18 – Application for conversion of Private Limited Company into LLP.

• FiLLiP – Incorporation form for LLP.

Also, obtain consent from the designated partners in eForm 9.

Step 4: Fill Out the FiLLiP Form in MCA Version 3

Select the option for “Conversion of Private Limited Company into an LLP.”
Fill out FiLLiP just like a regular LLP incorporation form.
Attach the required documents:

• ID and Address Proof of Partners
• Proof of Registered Office (including NOC)
• Subscribers’ Sheet

Step 5: Submit Form 9 (Consent of Designated Partners)

This form captures the consent of individuals who will act as designated partners in the LLP. It falls under Section 7, Rule 7 of the LLP Act, 2008. In MCA Version 3, the system auto-generates and pre-fills Form 9, requiring applicants to make minimal efforts.

Step 6: Complete Form 18 (Final Conversion Form)

The user submits this form after FiLLiP and Form 9.
Provide details like:

• Pending legal cases (if any)
• Total assets and financial details
• Total revenue of the company

Once the authorities approve the filed forms, the system officially converts the Private Limited Company into an LLP.

Post-Conversion Compliances for LLPs

After a company is converted into an LLP, certain essential compliances and tax requirements must be completed for a smooth transition:

• All assets, liabilities, and obligations of the company automatically vest in the LLP without fresh transfer deeds.
• You must obtain a new PAN and TAN and open fresh bank accounts in the LLP’s name.
• The LLP must file its annual compliance – Form 8 (Statement of Accounts & Solvency) and Form 11 (Annual Return).
• Conversion remains tax-neutral under Section 47(xiiib) if the company fulfills the prescribed conditions; otherwise, capital gains tax applies.
• The company loses its MAT credit, and it can carry forward losses or depreciation only if it satisfies Section 47(xiiib) conditions.
• The LLP must formally transfer and record employees, ongoing contracts, and intellectual property in its name.
• The LLP must update business stationery, invoices, websites, and signboards, and inform all stakeholders about the new entity.

LLP vs. Other Structures

Choosing the right business structure is crucial for liability protection, compliance, and taxation. Here’s how an LLP compares to other common structures:

Feature	LLP	Private Limited Company	Partnership Firm	Sole Proprietorship
Liability	Profit taxed in the hands of partners (30% + cess)	Limited to shareholding	Unlimited	Unlimited
Compliance	Moderate, fewer filings	High, multiple annual filings	Low	Income taxed in the owner’s hands
Audit Requirement	Mandatory only if turnover > ₹40 lakhs	Mandatory if turnover > ₹2 crores	Not required	Not required
Management	Flexible, partners manage directly	Board of Directors, more formal	All partners manage	Owner manages
Taxation	Limited to the owner’s capital	Corporate tax + Dividend Distribution Tax	Partners taxed individually	Limited to the owner’s capital
Funding	Limited to partner contributions	Can raise equity funding	Limited to partner contributions	Income is taxed in the owner’s hands
Regulatory Disclosure	Minimal	High, public filings required	Low	Low

Key Point: LLPs provide limited liability with simpler management and compliance compared to a Private Limited Company, making them suitable for small and medium businesses.

Ending Note

Converting from a Private Limited Company to an LLP offers numerous benefits, including lower compliance, tax savings, and greater operational freedom. If you’re ready to reduce your business’s administrative burden and enjoy better tax treatment, an LLP might be the right move for you.

Frequently Asked Questions (FAQs)

1. Can a Private Limited Company be converted into an LLP?

A: You can convert a Private Limited Company into a Limited Liability Partnership (LLP) under the Limited Liability Partnership Act, 2008. The conversion must comply with MCA guidelines, and all shareholders of the company must become partners in the LLP.

2. What is the cost of converting a Pvt Ltd company to an LLP?

A: The cost varies depending on professional fees and government charges. On average, the government fees range between ₹2,000 to ₹10,000, depending on the company’s authorized capital, plus additional professional charges for legal and documentation services.

3. How long does it take to convert a Private Limited Company into an LLP?

A: The conversion process typically takes 15 to 30 days, depending on the approval timeline from the Ministry of Corporate Affairs (MCA) and the completeness of submitted documents.

4. What is the turnover limit for converting a Private Limited Company into an LLP?

A: There is no specific turnover limit for conversion. However, an LLP must get its accounts audited if its turnover exceeds ₹40 lakh or its capital contribution exceeds ₹25 lakh.

5. What is the form required for the conversion of a Private Limited Company to an LLP?

A: The conversion process requires filing the following forms on the MCA portal:

• RUN LLP – Name reservation
• FiLLiP – LLP incorporation
• eForm 18 – Application for conversion
• eForm 9 – Consent of designated partners

6. Is Schedule 3 applicable to LLPs?

A: No, Schedule III of the Companies Act, 2013, which deals with the format of financial statements, does not apply to LLPs. Instead, LLPs follow the LLP Rules, 2009, for financial reporting and compliance.