Conversion of Private Limited company into Limited Liability Partnership

It is important to understand the concept of an LLP for an entrepreneur or a businessperson who is interested in offering protection to his personal assets while operating in a collaborative and flexible environment. A proper understanding of the concept of an LLP allows businesses to make informed decisions as per the long-term objectives, risk availability, and operational requirements.

Whether you are a budding entrepreneur or an experienced business leader, join us on this journey as we explain what an LLP is and unlock the potential it holds for businesses across segments. By the end of this blog, you shall have complete knowledge about an LLP and be adequately prepared to decide if this form of business entity is the best fit for your entrepreneurial dreams.

Conversion of a Private Limited Company Private Limited Company into an LLP presents several advantages that can impact positively on a business operation, its legal structure, and financial aspects. Some of the main advantages for such conversion are listed below:

1. Limited Liability Protection: One of the main advantages of conversion into LLP is the limited liability protection granted to its partners. In a Pvt Ltd company, the liability of the shareholders is limited to their shareholding. In the case of an LLP, the partners have limited liability protection wherein the personal assets of the partners are protected against the debts or liabilities of the business.
2. Flexibility in Ownership and Management: LLPs provide more flexibility with respect to ownership and management compared to Pvt Ltd companies. In an LLP, the partners can actively involve themselves in the decision-making process and have more control over the day-to-day operations.
3. Simpler Compliance and Reporting Requirements: Generally, the compliance and reporting requirements for an LLP are not as difficult as those of a Pvt Ltd company. Since LLPs have lesser statutory compliance requirements, the administrative workload and its related costs are reduced.
4. Tax Benefits and Flexibility: Conversion to LLP can thus give potential tax benefits and more flexibility in taxation than Pvt Ltd companies. For the purpose of income tax, LLPs are treated as partnerships, meaning the partners can enjoy the pass-through taxation system wherein income received by the firm is divided among the partners, who pay individual income taxes on their share of profits.
5. Continuity and Perpetual Succession: LLPs guarantee continuity and perpetual succession. Thus, the business can continue to carry on without any hurdle even in case of exit or death of a partner. Unlike a Pvt Ltd company, where the change in shareholding is affected, in the case of LLPs, the admission of new partner/transfer of partnership rights can be done without disturbing the legal entity.
6. Increased Credibility and Business Avenues: In specific lines of business or professional services, an LLP can establish greater credibility and therefore better avenues to do business. LLPs generally have a wide acceptability in professions related to legal services, accounting, consultancy, and architecture. The clients and stakeholders view LLPs as a sufficiently reliable and transparent organization. This results in more business avenues and collaborations.

The given requirements must be fulfilled before converting a private limited company into a Limited Liability Company:

• Consent of all Pvt Ltd Company members for conversion.
• Latest copy of the annual financial returns must be filed with ROC.
• Consent from all the creditors for conversion of company into LLP.
• Drafting of LLP agreement and taking consent from all the members.