It is set to grow with the increasing awareness of LLP. The entrepreneurs consider LLP as the choice for business as they do not perceive long term goals and the requirement for raising funds. But with growth, the small business at some point wants to convert the Limited Liability Partnership into a Private Limited Company.
Yes, an LLP can be converted into a private limited company as per the provisions of the companies act,2013 and the company rules as amended in the year 2018. Form URC-1 is to be filed for completing the application for conversion of a firm into a company.
For the purpose of conversion, the company should include Partnership Firm(PF), Limited Liability Partnership(LLP), Co-operative Society. The provision excludes an unlimited company having more than 7 members or company that is limited by shares.
The company should check the number of members that are present in a company. If the number of members is less than 7 then the members of the company should be increased after conducting a meeting and passing a Board resolution.
A run application is to be filed through an online RUN application. The application made should contain the list of 3 names best suited for your company, the name selected should be unique and should not be similar to a trademark or an existing company.
You will have to advertise about the registration so that any objection if any can be raised for the company conversion. The advertisement is in English and any vernacular language applicable in the particular jurisdiction or district in which an LLP is formed.
The characteristics and features of an LLP make it appropriate for small business. It has a reasonable amount of time, an annual turnover of less than Rs. 40Lakh and also the capital contribution of less than Rs. 25 Lakhs. An LLP also doesn't require an audit each year, for a Private Limited Company irrespective of the capital and the turnover, the annual account needs to be audited. It is always recommended to choose Private Limited Company for the people wanting to induct equity capital from a venture capitalist.
There are a various different form of business types and amongst them, LLP(Limited Liability Partnership) is one, wherein it involves two or more people together who owns and operates a single business. The two major benefits that make people choose LLP as a business type is tax benefits and limited liability. The advantages are as follows:
It is very easy to form LLP compared to Companies and the requirements of LLP are minimum which makes it easy for the proprietors to form and manage the company. There is no limit of capital assigned to form LLP, there can be as many owners as needed, and if something goes wrong in the company then the owners are liable only to their shares.
The LLP Act,2008 gives the freedom to manage its own affairs, the partners can decide the way they want to run and manage the LLP. During the incorporation of LLP, the partners have complete authority to mould down their contribution and also there is no bar to participate in business meetings or consultations with anyone which they do not feel the need to.
LLP is a separate entity from the personal life hence liability for repayment of debts and lawsuits incurred by the LLP lies on it and not the owner. They have much less liability as the name suggests. Since there are multiple owners in the business the risk of it decreases as compared to other company types. In case the company was sued then the members or partners need to divide the debts of the company.
The number of compliance are lesser in case of LLP as compared to Private Company which leads to more savings. In the LLP there are only two regulatory formalities that are to be filed i.e. the Annual Return & Statement of Account & Solvency. Whereas in Private limited company there are about eight to ten formalities to be filed. The lower compliance burden helps in the financial return of the company.
There is a requirement for audit in all the limited companies whether it is public or private, and it also doesn't matter how much the share of capital is, but for LLP it is not compulsory. There are a few cases wherein the audit needs to be done:
There are certain major tax benefits for an LLP Section 40(b) states that in an LLP the interest to partners, any payment of salary, bonus, commission or remuneration are allowed as deduction. DDT which is basically, if the owner needs to withdraw the profit from the company, there is a need to pay an additional tax-liability which is 15%( plus the surcharge). This DDT is cut off for an LLP.
In accordance with the LLP Agreement, it is easy to leave or become Partner and also easy to transfer the ownership.
Compared to the other type of business the cost of incorporation of Limited Liability Partnership is much lesser.
The Private Limited Company has a distinct existence and a juristic person(not a natural person or human being) established under the Act. This Company form has a wide legal capacity and is permitted to own property along with incurring debts. The liability of the members(Shareholders/Directors) are limited only to their shares. Hence the distinct legal entity that benefits the members.
The limited liability companies benefit over the proprietorship and partnership because of its feature wherein the members are not accountable for the debts of the company. The shareholders are only liable/responsible for their share of the money they invested in the company.
Since the company is a juristic person it is the only owner and no one can demand the ownership of the company. The shareholders can't make any claim upon the property of the company, the Company itself is the true owner.
Funds can be borrowed to a great extent as it can issue debentures and also accept deposits from the public. The shareholders as well add to the capital of the company. The Banking and Financial Organizations are more likely to assist a Private Limited Company rather than a Proprietorship or Partnership.
There is a higher scope of expansion because it is easy to raise capital from the financial institutes which add to the advantage of the Private Limited Company.
Private Limited Companies enjoy tax advantages added on to the limited liability wherein the companies pay corporation tax on their taxable profit and tend to get excused from higher personal income tax rates. Instead of being a sole trader forming of a company leads to an increase in tax deduction and allowances redeemable against profits.
This means in a Private Limited Company it is possible to make an effective contract with any of its members. A person can be at the same time be a shareholder, creditor, director and also an employee of the company. It is flexible regarding the members of the company.