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Benefits of Conversion of Private/Unlisted Public Limited Company into LLP



1.     Taxation


LLPs are taxed like general partnership firms. LLPs pay an effective tax of 30.9%. They are exempted from 10%
surcharge. LLPs tax payment is lower than that of companies, which pay a 33.99% tax on profits.


The tax will be imposed only on 10% or 40% of the LLP’s income, since the firm will be allowed to pay the balance
90% or 60% to the partners as remuneration. This means, the partners will have to pay tax on the amount paid to
them. So, there will be no double taxation of income.


Unlike Pvt. Or Public Companies, no requirement for payment of Dividend distribution/Corporation Tax on distribution
of income/profits among partners and there is no requirement as to Minimum Alternate Tax.


2.     No Audit requirement


Audit is not required unless capital exceeding Rs. 25 lakh or turnover exceeding Rs. 60 lakh.


3.     Automatic transfer


All the assets and liabilities of the Company immediately before the conversion become the assets and liabilities of the
LLP.


4.     No Stamp Duty


All movable and immovable properties of the company automatically vest in the LLP. No instrument of transfer is
required to be executed and hence no stamp duty is required to be paid.


5.     No Capital Gain Tax


No Capital Gains tax shall be charged on transfer of property from Company to LLP, subject to the following conditions:


      The total sales, turnover or gross receipts in business of the company do not exceed sixty lakh rupees in any of the
       three preceding previous years;


      The shareholders of the company become partners of the LLP in the same proportion as their shareholding in the
       company;


      No consideration other than share in profit and capital contribution in the LLP arises to partners;
    The erstwhile shareholders of the company continue to be entitled to receive at least 50 per cent of the profits of
     the LLP for a period of 5 years from the date of conversion;


    All assets and liabilities of the company become the assets and liabilities of the LLP; and


    No amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the company for a
     period of 3 years from the date of conversion.


6.   Carry Forward and Set off Losses and Unabsorbed Depreciation


The accumulated loss and unabsorbed depreciation of Company is deemed to be loss/ depreciation of the successor
LLP for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the
hands of the successor LLP.


7.   No Limit on number of shareholders/partners


Unlike private limited companies (shareholders limited to 50), an LLP can have unlimited number of partners.


8.   Minimal Compliance Level & Cost effective model


There is no need of compliances related to meetings and maintenance of huge statutory records.


9.   Continuation of Brand Value


The goodwill of the Company and its brand value is kept intact and continues to enjoy the previous success story with
legal recognition.




                                                         ******
Conversion of Private/Public Limited Company into LLP


Key requirements:

        On Conversion, all the members/shareholders of the company shall become partners of the LLP in the same

         proportion in which their capital accounts stood in the books of the company on the date of the conversion.

        Upto date filing of Income tax returns & Annual returns with RoC

        Consent of all the unsecured creditors for the proposed conversion

        The partners receive consideration only by way of allotment of shares in LLP

        Minimum 2 Designated Partners

        Atleast 1 of the designated partners shall be an Indian Resident

        If a body corporate is a partner, it has to nominate a natural person as its nominee

        The Partners and Designated Partners can be same person

        There is no concept of share capital, but there has to be some sort of contribution from each partner

        DPIN (Designated Partner Identification Number) for all the Partners

        DSC (Digital Signature Certificate) for two of the Designated Partners



Steps in Conversion of a Private Limited Company into an LLP




Step                         Steps                       Timeframe                              Processing
No.                                                     (Working days)

    1.       DPIN ( Designated Partner                                           Apply for DPIN and get a provisional DPIN
             Identification Number)                            5
                                                                                 Certification/Attestation of Director’s
                Approved DPIN is a pre-requisite                                 personal details
                 for incorporation process
                                                                                 Sending the same to the MCA Cell and
                                                                                  getting it approved


    2.       Application for Name Availability                                   on conversion of private company only
                                                               3                  deletion of words “Private/Public Limited”
                Filing of Form 1                                                 and addition of the word “LLP” in existing
                                                                                  name of the company as last word are
                                                                                  allowed

    3.       Documents required for                                              Drafting the LLP Agreement and after
             Conversion                                                           getting it vetted by Promoters, sending it
                                                               2                  for printing
                LLP Agreement
                                                                                 Important attachments for Form 18
                Form 18
                 (Application for Conversion)                                        Statement of shareholders
   Form 2                                         Statement of Assets and Liabilities of
         (Statement by Promoter)                         the company duly certified as true and
                                                         correct by the auditor
        Form 3
         (Information regarding the LLP                 List of all the unsecured creditors along
         Agreement)                                      with their consent
                                                        Approval from any other
        Form 4 & Form 9                                 body/authority, if required.
         (Notice of Consent & Appointment
         of Designated Partners with their          Processing of eForms
         personal details)

        Subscription sheet signed by the
         promoters

        Duly stamped LLP Agreement

        Proof of Address of Registered
         Office

4.       Final Process:                             Online uploading of e-Forms
                                             5
        Filing all the above documents             Payment of Registration fees
         with the ROC, follow up with the
         ROC                                        Issue of Certificate of Incorporation

        Making changes in LLP
         Agreement/ other conversion
         documents as suggested by the
         ROC
Tax Savings under LLP STRUCTURE as compared with PRIVATE/PUBLIC LIMITED COMPANY (When the annual net Profit is upto 25 Lacs)
                                                                  Rs. 6,34,000 Savings

             PRIVATE LIMITED COMPANY                                                     LIMITED LIABILITY PARTNERSHIP (LLP)




Net Profit                   Total Tax outlay from        Net Profit    Taxation Slabs                                                               Total Tax outlay
                             the Company                  Slabs                                                                                      from the LLP &
                                                                                                                                                     Partners



                                                                        10 % Taxed in the hands of           31% on Rs. 30,000 =                                Rs. 9,300

                             Rs.8,25,000                  Rs. 3 Lacs    LLP
Income Tax =
                                                                        90 % Distributed to                  Rs. 2,70,000 is distributed among
                             (33% on Rs. 25 Lacs)
                                                                        Partners as Remuneration              the Partners
                             (Net Profit available for
                                                                                                         If equal distribution among Partners:
                             distribution as Dividend=
                                                                                                         Rs. 1.35 Lac each
                             Rs. 16.75 Lacs)



                                                                        40 % Taxed in the hands of           31% on Rs. 8,80,000 =                         Rs. 2,72,800
Dividend Distribution Tax=   2,68,000                     Rs. 22 Lacs   LLP

                                                                        60 % Distributed to                  Rs. 13,20,000 is distributed
                             (16% on Rs. 16.75 Lacs)
                                                                                                              among the Partners=
                                                                        Partners as Remuneration
                                                                                                              Rs. 6,60,000 each
                                                                                                             Hence total remuneration paid to

                                                                                                              each Partner is

                                                                                                              Rs. 7,95,000 (1.35 lac+ 660K)

                                                                                                             Each Partner to pay tax on Rs.
                                                                                                              7,95,000                                      Rs. 1,86,000
                                                                                                              -Upto Rs. 1.6 lac     =Nil
                                                                                                              -On 3.4 lac           = Rs. 34 k        (Rs. 93,000 each)
                                                                                                             - On 2.95 lacs         = Rs. 59 k

                                      Rs. 10,93,000                                                                                                       Rs. 4,58,000
                                                                                         (If one of the partner is Female/Senior citizen tax will be less than Rs. 4,50,000



                                           TOTAL SAVING UNDER THE LLP MODEL IS RS. 6,34,000/RS. 6,30,000
                                                         (Rs. 10,93,000 – Rs. 4,58,000= Rs. 6,34,000)

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Benefits Of Conversion Of Public Limited Company Into Llp In India

  • 1. Benefits of Conversion of Private/Unlisted Public Limited Company into LLP 1. Taxation LLPs are taxed like general partnership firms. LLPs pay an effective tax of 30.9%. They are exempted from 10% surcharge. LLPs tax payment is lower than that of companies, which pay a 33.99% tax on profits. The tax will be imposed only on 10% or 40% of the LLP’s income, since the firm will be allowed to pay the balance 90% or 60% to the partners as remuneration. This means, the partners will have to pay tax on the amount paid to them. So, there will be no double taxation of income. Unlike Pvt. Or Public Companies, no requirement for payment of Dividend distribution/Corporation Tax on distribution of income/profits among partners and there is no requirement as to Minimum Alternate Tax. 2. No Audit requirement Audit is not required unless capital exceeding Rs. 25 lakh or turnover exceeding Rs. 60 lakh. 3. Automatic transfer All the assets and liabilities of the Company immediately before the conversion become the assets and liabilities of the LLP. 4. No Stamp Duty All movable and immovable properties of the company automatically vest in the LLP. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid. 5. No Capital Gain Tax No Capital Gains tax shall be charged on transfer of property from Company to LLP, subject to the following conditions:  The total sales, turnover or gross receipts in business of the company do not exceed sixty lakh rupees in any of the three preceding previous years;  The shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company;  No consideration other than share in profit and capital contribution in the LLP arises to partners;
  • 2. The erstwhile shareholders of the company continue to be entitled to receive at least 50 per cent of the profits of the LLP for a period of 5 years from the date of conversion;  All assets and liabilities of the company become the assets and liabilities of the LLP; and  No amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the company for a period of 3 years from the date of conversion. 6. Carry Forward and Set off Losses and Unabsorbed Depreciation The accumulated loss and unabsorbed depreciation of Company is deemed to be loss/ depreciation of the successor LLP for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor LLP. 7. No Limit on number of shareholders/partners Unlike private limited companies (shareholders limited to 50), an LLP can have unlimited number of partners. 8. Minimal Compliance Level & Cost effective model There is no need of compliances related to meetings and maintenance of huge statutory records. 9. Continuation of Brand Value The goodwill of the Company and its brand value is kept intact and continues to enjoy the previous success story with legal recognition. ******
  • 3. Conversion of Private/Public Limited Company into LLP Key requirements:  On Conversion, all the members/shareholders of the company shall become partners of the LLP in the same proportion in which their capital accounts stood in the books of the company on the date of the conversion.  Upto date filing of Income tax returns & Annual returns with RoC  Consent of all the unsecured creditors for the proposed conversion  The partners receive consideration only by way of allotment of shares in LLP  Minimum 2 Designated Partners  Atleast 1 of the designated partners shall be an Indian Resident  If a body corporate is a partner, it has to nominate a natural person as its nominee  The Partners and Designated Partners can be same person  There is no concept of share capital, but there has to be some sort of contribution from each partner  DPIN (Designated Partner Identification Number) for all the Partners  DSC (Digital Signature Certificate) for two of the Designated Partners Steps in Conversion of a Private Limited Company into an LLP Step Steps Timeframe Processing No. (Working days) 1. DPIN ( Designated Partner  Apply for DPIN and get a provisional DPIN Identification Number) 5  Certification/Attestation of Director’s  Approved DPIN is a pre-requisite personal details for incorporation process  Sending the same to the MCA Cell and getting it approved 2. Application for Name Availability  on conversion of private company only 3 deletion of words “Private/Public Limited”  Filing of Form 1 and addition of the word “LLP” in existing name of the company as last word are allowed 3. Documents required for  Drafting the LLP Agreement and after Conversion getting it vetted by Promoters, sending it 2 for printing  LLP Agreement  Important attachments for Form 18  Form 18 (Application for Conversion)  Statement of shareholders
  • 4. Form 2  Statement of Assets and Liabilities of (Statement by Promoter) the company duly certified as true and correct by the auditor  Form 3 (Information regarding the LLP  List of all the unsecured creditors along Agreement) with their consent  Approval from any other  Form 4 & Form 9 body/authority, if required. (Notice of Consent & Appointment of Designated Partners with their  Processing of eForms personal details)  Subscription sheet signed by the promoters  Duly stamped LLP Agreement  Proof of Address of Registered Office 4. Final Process:  Online uploading of e-Forms 5  Filing all the above documents  Payment of Registration fees with the ROC, follow up with the ROC  Issue of Certificate of Incorporation  Making changes in LLP Agreement/ other conversion documents as suggested by the ROC
  • 5. Tax Savings under LLP STRUCTURE as compared with PRIVATE/PUBLIC LIMITED COMPANY (When the annual net Profit is upto 25 Lacs) Rs. 6,34,000 Savings PRIVATE LIMITED COMPANY LIMITED LIABILITY PARTNERSHIP (LLP) Net Profit Total Tax outlay from Net Profit Taxation Slabs Total Tax outlay the Company Slabs from the LLP & Partners 10 % Taxed in the hands of  31% on Rs. 30,000 = Rs. 9,300 Rs.8,25,000 Rs. 3 Lacs LLP Income Tax = 90 % Distributed to  Rs. 2,70,000 is distributed among (33% on Rs. 25 Lacs) Partners as Remuneration the Partners (Net Profit available for If equal distribution among Partners: distribution as Dividend= Rs. 1.35 Lac each Rs. 16.75 Lacs) 40 % Taxed in the hands of  31% on Rs. 8,80,000 = Rs. 2,72,800 Dividend Distribution Tax= 2,68,000 Rs. 22 Lacs LLP 60 % Distributed to  Rs. 13,20,000 is distributed (16% on Rs. 16.75 Lacs) among the Partners= Partners as Remuneration Rs. 6,60,000 each  Hence total remuneration paid to each Partner is Rs. 7,95,000 (1.35 lac+ 660K)  Each Partner to pay tax on Rs. 7,95,000 Rs. 1,86,000 -Upto Rs. 1.6 lac =Nil -On 3.4 lac = Rs. 34 k (Rs. 93,000 each) - On 2.95 lacs = Rs. 59 k Rs. 10,93,000 Rs. 4,58,000 (If one of the partner is Female/Senior citizen tax will be less than Rs. 4,50,000 TOTAL SAVING UNDER THE LLP MODEL IS RS. 6,34,000/RS. 6,30,000 (Rs. 10,93,000 – Rs. 4,58,000= Rs. 6,34,000)