Explanation of Process Involved, Pros & Cons, Mechanism & past explaining the motive of LLP.

1. Technical Session-II:
ConversionofacompanyintoLLP
1
By MVSK RUTHVIK
MVSK RUTHVIK

2. TOPICS OF DISCUSSION
• BACKGROUND AND KEY FEATURES OF LLP
• WHY TO CONVERT TO A COMPANY INTO LLP?
• PROCEDURE FOR CONVERSION
• MERITS
• DEMERITS
• CONCLUSION
2MVSK RUTHVIK

3. TOPICS OF DISCUSSION
• BACKGROUND AND KEY FEATURES
• WHY TO CONVERT TO A COMPANY INTO LLP?
• PROCEDURE FOR CONVERSION
• MERITS
• DEMERITS
• CONCLUSION
3MVSK RUTHVIK

4. • Before starting with anything we shall have the overview
of Limited Liability Partnership (LLP) its enactment,
features, constitution etc.
4
Rajya
Sabha
24th Oct
2008
Lok Sabha
13th Dec
2008
President
Accent 7th
Jan 2009
Official
Gazette 9th
Jan 2009
LLP Act
effective
from 1st
April 2009
along with
LLP Rules
MVSK RUTHVIK

5. BACKGROUND OF LLP
• LLP is governed by Limited Liability Partnership Act, 2008
which came in to force on 1st day of April 2009. This Act was
introduced with the idea of promoting MSME Sector (Micro
Small Medium Enterprise) with the advantage of self
governanceandlesscompliance.
• Itisauniqueformoflegallyrecognizedcorporateentity,which
integratesthefeaturesofboththelimitedcorporationsandthe
traditionalpartnershipfirms.
• It is a unique Hybrid Combination of both Company and
Partnership which is especially suitable for small to medium-
sizedbusinessenterprisesandprofessionalsparticularly.
5MVSK RUTHVIK

6. KEY FEATURES OF LLP
• LLP Act, 2008 constitute 81 Sections,14 Chapters and 4
schedules.SofarLLPRules2009hasprescribedmanyformsto
befiledwithMCA.
• LLP is a corporate body and granted the legal status same as
thatofcompany.
• Unlike the partnership, in LLP the liability of the partner is
limiteduptothecontributionmadebythem.
6MVSK RUTHVIK

7. • BACKGROUND AND KEY FEATURES
• WHY TO CONVERT TO A COMPANY INTO LLP?
• PROCEDURE FOR CONVERSION
• MERITS
• DEMERITS
• CONCLUSION
7MVSK RUTHVIK

8. WHY TO CONVERT ???
• As all of us are aware that Companies Act-2013 came into
force w.e.f. 01st April, 2014. Under Companies Act, 2013
therearelotsofcomplianceandmanycomplications,which
arecostconsumingforsmallenterprises.
• Therefore, Small enterprises are thinking to switch their
CompaniesintoLimitedLiabilityPartnership(LLP’s)Firm.
• AregisteredlimitedcompanyinIndia(PrivateorPublic)has
a lotofcomplexformalitiesandincursadditionaloverheads
for managing affairs including mandatory board meeting,
maintenance of statutory records, filling of e-forms with
MCAetc. 8MVSK RUTHVIK

9. Continued…..
• Absence of such mandates for LLP combined with
advantages such as non-applicability of dividend distribution
tax on profit repatriation, transfer of profit rulesand deemed
dividendprofitissues,MATprovisions.
• In India, formation, registration, and regulation of an LLP is
exclusively governed and controlled by the rules, provisions,
and regulations provided in the LLP Act of 2008 and the LLP
Rulesof2009.
• EarlierTheMinistryofCorporateAffairs(MCA),Government
of India had separate portal for LLP. But now its has been
mergedtheMCA21Portalforitsoperations.
9MVSK RUTHVIK

10. • BACKGROUND AND KEY FEATURES
• WHY TO CONVERT TO A COMPANY INTO LLP?
• PROCEDURE FOR CONVERSION
• MERITS
• DEMERITS
• CONCLUSION
10MVSK RUTHVIK

11. PROCESS OF CONVERSION OF LLP
Step-1:
Obtain DIN
• Earlier there was Concept of DPIN, which has been
abolished thereafter. Now DIN in case of director in a
company and is also acceptable for LLP
Step-2:
Board meeting
• Call meeting of board of Director.
• Pass Resolution for Conversion of Company into LLP.
• Pass Resolution to authorize any director to Apply for
Name of LLP.
11MVSK RUTHVIK

12. Step-3:
Application for the Name availability
• E-Form 1 should be filed with ROC attaching the board
resolution passed by the Company approving the conversion
intoLLPandrespectivefeeshouldbepaid.
Step-4:
Filingofincorporationdocuments
• E-Form 2 has to be filed with ROC with the following
attachments:-
– Proof of Address of Registered office of LLP.
– Subscriptionsheetsignedbythepromoters.
12MVSK RUTHVIK

13. – NoticeofConsent&AppointmentofDesignatedPartners
withtheirpersonaldetails
– DetailofLLPand/orcompanyinwhichpartner/designated
partnerisadirector/partner
Step-5:
DraftinganLLPAgreement
• On obtaining the Name approval from the ROC, an LLP
Agreement has to be drafted. The contents of the LLP
Agreementareasfollows:-
– NameofLLP
– NameofPartners&DesignatedPartners
– Formofcontribution
13MVSK RUTHVIK

14. Continued…….
– Profit Sharing ratio
– Rights & Duties of Partners
– Proposed Business
– Rules for governing the LLP
• It is not necessary to have the LLP Agreement signed at the
time of incorporation, as the details of the same needs to field
in E-Form 3 within 30 days of incorporation but in order to
avoid any dispute between the partners as to the terms &
conditionsoftheagreementaftertheconversionintoLLP.
14MVSK RUTHVIK

15. Step6:
FilingofapplicationforconversionintoLLP
EForm18hastobefiledalongthefollowingAttachments
– Statementofshareholders.
– IncorporationDocuments&SubscribersStatementsinForm2
filedelectronically.
– Statement of Assets and Liabilities of the company duly
certifiedastrueandcorrectbytheauditor.
– List ofallthe Securedcreditorsalongwiththeirconsentto the
conversion.
– Approval of the governing council (In case of
professionalprivatelimitedcompanies).
15MVSK RUTHVIK

16. – NOC from Income Tax authorities and Copy of
acknowledgementoflatestincometaxreturn.
– Approvalfromanyotherbody/authorityasmayberequired.
– Particulars of pending proceedings from any court/Tribunal
etc
• After Completing all the formalities by filing the required forms,
ROC will approve such conversion and issue Certificate of
incorporationforsuchconversion.
Step-7
FilingoftheEForm3
• In case earlier e form-3 has not been filed by attaching the LLP
Agreement it has to be done so within 30 days of receiving the
incorporationcertificatefromROC.
16MVSK RUTHVIK

17. Step 8:
Intimation to the ROC by Filing E Form 14
• After Receiving Incorporation Certificate, Limited liability
partnershiphas to filewithin15 daysofthe date of registration,
informationtotheconcernedRegistrarofCompanieswithwhich
it was registered under the provisions of the Companies Act,
2013.
• FollowingaretheAttachmentstotheeform-14:
– CopyofCertificateofIncorporationofLLPformed.
– CopyofincorporationdocumentsubmittedinForm2
• TheAboveisfinalstepwhichconcludestheprocedure.
17MVSK RUTHVIK

18. Step-
1:obtain
DIN
Step-2:Call
for a board
meeting
Step-3:File
E Form 1
for name
availability
Step-4:
Filing of
Incorporat
ion
document
in E Form
2
Step-5:
Filing of
LLP
Agreemen
t in E
Form 3
Step-
6:Filing of
E Form 18
for
conversio
n into LLP
Step-
7:Filing of
E Form as
an
intimation
to ROC
about
conversion
18MVSK RUTHVIK

19. • BACKGROUND AND KEY FEATURES
• WHY TO CONVERT TO A COMPANY INTO LLP?
• PROCEDURE FOR CONVERSION
• MERITS ON CONVERSION INTO AN LLP
• DEMERITS ON CONVERSION INTO AN LLP
• CONCLUSION
19MVSK RUTHVIK

20. NO Particulars LLP Private Company
1. Members Minimum2Partner
Nomaximumlimit
Minimum2Member,
Maximum200Members
2. Liability Limited, Except in case of Fraud
andwrongfulAct
LimitedLiability
3. Formstobefilled Regular formstobefiledare
E-form-8&Eform-11
Regular formstobefiledare
MGT-14 (two times), 23AC,
23ACA,20B,GNL-2,ADT-1.
4. Transfer/Inheritance
ofShares
Transfer, But transferee may not
havemanagementright
By court order once the company
havebeenwoundup
5. AuditofAccounts Require only if Turn over above
40 lacs or Contribution more
than25lacs.
AuditisCompulsory.
6. Management
through
LLP agreement. MemorandumofAssociationand
Article of Association of
company. 20MVSK RUTHVIK

21. Compliance Requirement
SL.NO Particulars LLP PrivateCompany
1. Maintenance of
StatutoryRecords
No such Registers are
requiredtomaintain.
Many Registers are Required to
Maintain Under Company as
perCompaniesAct-2013
2. Addition or Deletion of
Directors
Require to amend LLP
Agreement and File e-form-
3&e-form-4.
Require to Pass Resolution in
General Meeting, File e-form-
DIR-12 and require many
documents from the person
who is appointed as Director.
(As per Section-152 of
CompaniesAct-2013.)
3. Change in Registered
Office
Require to amend LLP
Agreement and File e-form
Form-15
There is Complete lengthy
process forchange inregistered
office of company as Per
Section-13 of Companies Act-
2013
21MVSK RUTHVIK

22. SL.NO Particulars LLP Private Company
4. Disclosure of
Interest
Nosuchrequirement Require to Take disclosure from director
underSection-184(1)andtofileform-MGT-
14.
5. Increase in
Capital
Onlyrequiretoamend
LLP Agreement and
Filee-formForm-3.
Require to Pass Ordinary resolution in
GeneralMeetingandfileformSH-7.
6. Convening of
Meetings
Nosuchrequirement Require to hold Meetings as per Section-
173.
(At least Two Board Meeting and one
Annual General Meeting for Small
Company and At least four Board Meeting
andOneAnnualGeneralMeetingforother
thenSmallcompany).
22MVSK RUTHVIK

23. Benefits from Income tax Perspective
• The finance Act, 2009 amended the Income-tax Act, 1961 to
clarify that LLPs will be taxed on the same lines as traditional
partnershipfirms.
• LLPs will be treated as Partnership Firms for the purpose
of Income Tax and taxed at 30% + education cess as
applicable. But there is no Surcharge.
• Profits will be taxed in the Hands of Entity not the
partners.
23MVSK RUTHVIK

24. • LLP can claim deductions on interest paid to
partners, on any salary, bonus, commission, or
remuneration to a partner who is a working
partner.
• The remuneration paid to the working partner
must not exceed the given limits specified u/s
40 (b).
MVSK RUTHVIK 24

25. Continued……
Thefollowingaresomeofthekeybenefit-
• Dividend Distribution Tax (DDT) shall not be applicable to LLPs
unlikethePrivatelimitedcompanies.
• Designated Partners will be liable to sign and file the Income Tax
return.
• Saving of Income Tax due to Interest and remuneration payable
topartnersassalarypayabletodirectors.
• However it is important to note that the Tax implications upon
the conversion of a Private Company or an unlisted company
into LLP were not clear by The Finance Act, 2009 in relating to
issueslikecapitalgainontransferofassetstoLLP,availabilityof
25MVSK RUTHVIK

26. Unabsorbed depreciation and set & carry forward of
losses etc.
• But Finance act 2010 has bought the clarity in relation
to above mentioned issues.
Relevant provisions:
 Section 56 and 57 of LLP act 2008
 Section 47 (xiiib) of the Income tax act 1961
• Section 47 (xiiib) has been introduced in the Finance act
2010 to bring clarity in respect of capital gains arising on
transfer of assets of a company on conversion into LLP.
• If the following conditions have been met then, such
transfer shall NOT BE TREATED as Transfer according to
the income tax provisions
26MVSK RUTHVIK

27. Sl.No Condition Particulars
1.
TurnoverLimit The Total sales, turnover or gross receipts in business of the company
donotexceedSixtyLacs(60Lacs)Rupeesinanyofthethreepreceding
previousyears
2. All the shareholders of
company became
partneroftheLLP
AlltheshareholdersofthecompanybecomepartnersoftheLLPinthe
sameproportionastheirshareholdinginthecompany.
3. Capital Contribution and
Profit Sharing Ration on
Conversion.
TheCapitalContributionandProfitSharingrationoftheshareholdersof
company should be in the same proportion as their shareholding in
the companyasonthedateofConversion.
4. No other consideration
topartners.
Noconsiderationotherthanshareinprofitandcapitalcontributionin
theLLParisestopartners.
5. Profit Sharing Ration
afterconversion
The erstwhile shareholders of the company continue tobe entitled to
receive at least 50 per cent in aggregate of the profits of the LLP for a
periodof5yearsfromthedateofconversion.
6. AssetsandLiabilities All assets and liabilities of the company become the assets and
liabilitiesofthellp.
7. Accumulated Profit
(Reserve)
Noamountispaid,eitherdirectlyorindirectly,toanypartneroutofthe
accumulated profit of the company for a period of 3 years from the27MVSK RUTHVIK

28. Continued……
• IfanyoftheAbove6Conditionsare
– NotsatisfiedthenitwillattracttheSection47(xiiib)ofthe
incometaxactwheretheamountofprofitorgainarisingwill
bebecomeTAXABLEinthehandsofthenewsuccessor
company.
– IfSatisfiedthenonlytheunabsorbeddepreciationandcarry
forwardoflosesshallbegiventothesuccessorcompanyor
elsetheywillbecomechargeabletotax.
28MVSK RUTHVIK

29. DEMERITS OF CONVERSION
• Onnoncomplianceofanyoneoftheconditionsinmentioned
earlier,thecapitalgaintaxwouldbecomeapplicabletoLLP.
• MostimportantlytheMATcreditwhichispaidbythecompany
undersec115JAAwillnotbecarryforwardedtoLLPsinceMATis
notapplicabletotheLLP.
• HoweverAMTremainstobeapplicabletoanLLP.
29MVSK RUTHVIK

30. FAQ’S
Q1. Whether an entity which has objectives like “charitable or
other than for profit objectives” would be able to set up
underLLPAct?
A. No. Theessentialrequirement for setting LLP is‘carryingon
alawfulbusinesswithaviewtoprofit’.
Q2.WhetherLLPAgreementwouldbemandatoryforallLLPs?
A. AsperprovisionsoftheLLPAct,intheabsenceofagreement
as to any matter, the mutual rights and liabilities shall be as
provided for under Schedule I to the Act. Therefore, in case
any LLP proposes to exclude provisions/requirements of
ScheduleItotheAct,specificallyexcludingapplicability of
30MVSK RUTHVIK

31. anyorallparagraphsofScheduleI.
Q3.WhetherLLPwouldbeabletoconvertitselfintocompany
undertheCompaniesAct,1956?
A. ThiswouldnotbeallowedunderLLPAct.However,enabling
provisionswouldberequiredtobemadeintheCompaniesAct
forsuchconversion.Necessaryactioninthisregardwouldbe
takenwhenCompaniesActwouldberevised.
Q4.Whether two LLPs would be allowed to merge?
A. Provisions of section 60 to 62 of the Act provide for the
manner in which compromises or arrangements
including mergers and amalgamations involving LLPs
shall be allowed.
31MVSK RUTHVIK

32. CONCLUSION
• WiththeFDAbeingpermittedtoLLPs,thiscanbeasuitableand
viable entity form for several business to compete with various
global players, considering its advantages over the company
form of organization from tax and operational flexibility
standpoint.Forchallenges needtobe facedandthereisasteep
learningcurve.
32MVSK RUTHVIK

33. Enough of Lecture….
33
Lets have humour
MVSK RUTHVIK

34. • Banner in front of the Institute of Chartered
Accountants of India …. “Drive slowly, don’t
kill our students….. leave them to us……”
• Are you-
– Emotionally Numb?
– Romantically Starved?
– Creatively Challenged?
– Artistically Void?
– Socially Outcast?
–Congratulations You are a CA
Student!!!!!!!!!!!!
34MVSK RUTHVIK

35. • AUDITOR
– A-accounting and others
– U-underlying
– D-data and
– I-information
– T-to give an
– O-opinion in
– R-the audit report
35MVSK RUTHVIK

36. Irritating audits, Fighting on stupid issues,
Everyday classes, unknown Office Hours
More expenditure, Less stipend,
People call it ARTICLESHIP, We call it LIFE.
• Nevertheless ………………………………….. We got
to be Proud of something…………………..
36MVSK RUTHVIK

37. • 5 Years
• 50 Laws
• 500 Lectures
• 5,000 Hours of Office Work
• 50,000 Sections
• 5,00,000 Rules
• A normal human being can’t bear it.
• The remaining are called
• CHARTERED ACCOUNTANTS…………………..
37MVSK RUTHVIK

38. 38MVSK RUTHVIK

39. 39MVSK RUTHVIK