Convert an LLP: Growth as Ultimate Goal
Growth, by any aspect, is presumed the ultimate goal of all legitimate entrepreneurs. No businessman would want to stagnate or lose in a venture involving hard-earned start-up capital.
In starting a business in India, most entrepreneurs, especially those with limited starting capital taps help from relatives and friends. In fact, they combine their resources to form and incorporate a Limited Liability Partnership.
After years of earning decent profits from operating a Limited Liability Partnership business format, entrepreneurs start to look beyond. For instance, they go bigger, expand or shift to another format where they stand to get more opportunities to grow.
Hence, the next logical step is to convert an LLP to a business format to another form of business organization that offers better opportunities for their growth and expansion.
Among the top choices of other organizational structures seen to attract shareholders is the Private Limited Company.
Companies Act of 2013
LLPs are restricted to convert their business to a private limited company. However, the enactment of Companies Act of 2013 superseded such restrictions which gave them a bigger room for growth.
With a law in place, any form of a business partnership like LLP, cooperative society, or any other business entity which has two or more members and incorporated under any other law may now register as an unlimited company or as a private company limited by shares or a company limited by guarantee as per provision specifically stated under section 366 of the Companies Act of 2013.
Time to Convert an LLP
In effect, the last five years saw the surge of LLP registration. Government figures pegged the LLP registration spike at 55% and continue to rise even further amid rising awareness about LLP.
It is worthy to take note that a significant fraction of those which opted to register as LLP are small businesses who have found satisfaction with the revenue they get from their LLP.
However, there seems a trend among small businessmen who find it rather logical to level-up and find the need to convert an LLP into a private limited company, where they foresee leverage for better opportunities for the growth and expansion of their business.
How to Convert an LLP Into a Private Limited Company
This is a simplified step by step guide on how to convert an LLP to a Private Limited Company.
1. Approval of Business Name
Before an entrepreneur could convert an LLP into a Private Limited Company, they should secure approval of business name from the Capital Records Center by submitting RUN (Reserve Unique Name) form which could be downloaded or filed online. Incidentally, a ROC-approved name is available for use only for 20 days for a newly formed company. As well, it is 60 days for an existing company vying for a change of business name. It is advisable to pursue business name registration before the time bracket provided gets to lapse.
2. Secure DSC and DIN
All companies operating in India are required to secure a Digital Signature Certificate (DSC). Parallel with the need for DSC, all members of the LLP who would automatically form the new Board of Directors of the private limited company are also mandated to apply for their individual Director Identification Number (DIN) – just in case they still don’t have one.
In securing these, soon-to-become company directors should submit (online) to the Ministry of Corporate Affairs proof of residency with a sworn affidavit attesting truthfulness, proof of identity (Valid ID), and one recent passport size coloured photo.
3. Filing of Form URC – 1
Upon approval of the business name by the CRC, the entrepreneur(s) vying to convert an LLP to a private limited company will have to file URC-1 form, along with the following:
- Names, address, the DIN, passport number with an expiry date of all the respective directors of the Private Limited Company.
- Section 164 of the Companies Act, 2013, also requires an affidavit from all the would-be directors of the Private Limited Company attesting to be “qualified to become a director in a company.”
- LLP agreement with a list consisting of names and addresses of partners and a certificate of registration duly verified by two designated partners.
- Declaration of the nominal share capital of the firm and the number of shares into which it is separated, the number of shares taken and the amount paid for every share and the name of the firm with the addition of word private limited.
- A no-objection certificate from creditors.
- Publication of an Auditor-certified statement of accounts of the company six days after the date of application. A copy of the newspaper of general circulation (government-accredited) where it was published should be submitted as well.
Business Advisors to Convert an LLP
In wanting to convert an LLP into a Private Limited Company, entrepreneurs should consider availing services of topnotch business advisors. Of course, with a proven track record of excellence in the field of incorporating the business in India.
3E Accounting maintains a dynamic team of India incorporation service provider. We can help you convert an LLP into a private limited company.
For more information, please contact us.