Conversion of a Private Limited Company into an LLP: A Complete Guide

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—converting to a Limited Liability Partnership (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. This article will guide you through the entire process of converting your Private Limited Company into an LLP. From the LLP conversion process to the legal and tax implications, we will cover all the essential details to help you transition smoothly.

What is a Limited Liability Partnership(LLP)?

An LLP combines the best features of both partnerships and companies. It offers limited liability protection, similar to a Pvt Ltd company, but with less rigid compliance rules. This makes it an attractive choice for business owners looking for operational flexibility and tax benefits. Let’s break down the key features of an LLP and how it compares with a Private Limited Company.

Key Features of an LLP:

• Limited Liability: Just like a Pvt Ltd, partners limit their liability to their agreed contribution to the LLP.
• Operational Freedom: AGMs do not need to be held, director details do not need to be disclosed, and numerous resolutions do not need to be filed by LLPs.The management is simpler and more flexible compared to Pvt Ltd.
• Tax Efficiency: LLPs do not incur Dividend Distribution Tax (DDT), and the partners typically tax profits at 30% (plus cess), which is often lower than the combined tax rate for a Pvt Ltd company.
• No Mandatory Audit: LLPs with turnover less than ₹40 lakhs are exempt from mandatory audits, whereas Pvt Ltd companies with turnover exceeding ₹2 crores must undergo annual audits.

LLP vs. Other Structures

Here is the comparison at a glance:

Feature	LLP	Pvt Ltd	Partnership Firm
Liability	Limited	Limited	Unlimited
Compliance	Low	High	Minimal
Tax on Dividends	None	10% + surcharge	N/A

Why Convert Your Private Limited Company into an LLP?

Real-World Scenario: A Successful Conversion

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).

Top 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.

Key Benefits of Converting private limited company into an LLP

The primary benefits of converting to an LLP are as follows:

1. Lower Compliance Costs: LLPs do not have the same level of compliance as Pvt Ltd companies. You don’t need to hold AGMs or submit numerous resolutions. The annual filing costs are significantly lower—around ₹5,000 for an LLP versus ₹20,000+ for a Pvt Ltd company.
2. Tax Savings: LLPs do not pay Dividend Distribution Tax (DDT), which can be a significant saving, especially for businesses that make a profit of ₹20 lakh or more.
3. Flexible Ownership: You can add or remove partners without the hassle of share transfers or stamp duties, which is a big plus for businesses looking to scale quickly.
4. Retained Credibility: Even after converting, the LLP retains the PAN, GST, and credit history of the Pvt Ltd company. This ensures there’s no disruption for clients or vendors.
5. Smooth Transition: The process of transferring licenses, contracts, and employee agreements is seamless, and all of them remain valid after conversion.

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 conversion, 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.

Pro Tip: Use RegisterKaro for LLP Registration to avoid legal loopholes.

Step-by-Step Process to Convert private limited company into an LLP

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 on the MCA portal to reserve the desired name for the LLP.
• Attach a Board Resolution approving the name reservation for conversion.

Step 3: File Conversion and Incorporation Forms

• Once the name is approved, file eForm 18 (conversion form) along with FiLLiP (incorporation form).
• 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 is filed under Section 7, Rule 7 of the LLP Act, 2008.
• In MCA Version 3, Form 9 is pre-filled, requiring no additional input.

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 these forms are successfully filed and approved, the Private Limited Company is officially converted into an LLP. 

Post-Conversion Compliance & Tax Implications

After conversion:

• Asset and Liability Transfer: All assets and liabilities of the company vest in the LLP without further action.
• Licenses and Permits: Existing licenses and permits may need to be transferred or reissued in the LLP’s name, subject to the provisions of the relevant statutes.
• Tax Considerations: The conversion is tax-neutral if it meets the conditions specified under Section 47(xiiib) of the Income Tax Act, 1961, such as all assets and liabilities becoming those of the LLP and all shareholders becoming partners with the same profit-sharing ratio.

5 Common Hurdles (& Solutions)

1. Stakeholder Resistance:
   • Fix: Host a webinar explaining tax savings (e.g., 20% DDT cut).
2. Technical Errors in Filings:
   • Fix: Hire a CS to draft Form 17 and the LLP Agreement or just contact RegisterKaro.
3. Post-Conversion Brand Confusion:
   • Fix: Notify clients via email and update contracts.
4. Delays in License Transfers:
   • Fix: Use MCA’s integrated portal for PAN/GST updates.
5. Tax Notice for Pre-Conversion Period:
   • Fix: Maintain separate books for pre/post-conversion transactions.

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.

Why Choose RegisterKaro?
RegisterKaro offers comprehensive services to guide you through every step of the LLP conversion process. From document preparation to post-conversion compliance, we ensure a smooth transition. Contact us today to start the process!

Contact Us:
Email: support@registerkaro.in
Call: +918447746183

Frequently Asked Questions (FAQs)

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

A: Yes, a Private Limited Company can be converted 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, if a company’s turnover exceeds ₹40 lakh or has a capital contribution exceeding ₹25 lakh, it is mandatory to get its accounts audited as per LLP regulations.

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, is not applicable to LLPs. Instead, LLPs follow LLP Rules, 2009, for financial reporting and compliance.