Company into LLP

Overview

A Private Limited Company or an Unlisted Public Company is often the preferred business structure for entrepreneurs who seek credibility, structured governance, and access to funding. Companies enjoy a strong legal identity, limited liability protection, and better acceptance among banks, investors, and regulatory authorities. However, these benefits come with a significant compliance burden.

Under the Companies Act, 2013, companies are required to follow strict statutory obligations such as holding regular board meetings, conducting annual general meetings, maintaining statutory registers, undergoing mandatory audits, and filing multiple returns with the Registrar of Companies (ROC). For small and medium businesses, family-owned enterprises, or closely held companies, these compliances may gradually become costly, time-consuming, and operationally restrictive.

To overcome these challenges, many businesses opt to convert their Company into a Limited Liability Partnership (LLP). An LLP, governed by the Limited Liability Partnership Act, 2008, offers a unique hybrid structure. It combines the flexibility of a partnership firm with the advantage of limited liability and a separate legal identity. Most importantly, LLPs are subject to significantly fewer compliances, lower annual costs, and greater freedom in internal management.

The Ministry of Corporate Affairs (MCA) has provided a legal framework for this conversion under Section 56 read with Schedule III and Schedule IV of the LLP Act, 2008. This framework ensures that the conversion is smooth and business-friendly. Upon conversion, all assets, liabilities, rights, obligations, contracts, and undertakings of the company automatically vest in the LLP, without the need for separate transfer deeds or agreements.

This conversion option is especially attractive for family-run companies, professional service firms, closely held businesses, and enterprises that do not require equity fundraising or public credibility, but instead prioritize flexibility, tax efficiency, and ease of compliance.

Eligibility Criteria

Not every company is eligible for conversion into an LLP. The law clearly defines the conditions that must be fulfilled to ensure transparency and protection of stakeholder interests.

• Only Private Limited Companies and Unlisted Public Companies are eligible for conversion. Listed companies are not permitted to convert into LLPs due to public interest considerations.
• All shareholders of the company must become partners of the LLP after conversion. No new person can be inducted as a partner at the time of conversion, and no existing shareholder can be excluded.
• The company must be free from defaults. This means there should be no pending ROC filings, unpaid statutory dues, unresolved charges, or outstanding compliance obligations.
• The conversion must be approved unanimously by all shareholders through a special resolution. Unlike other corporate actions, even a single dissenting shareholder can block the conversion.
• Since liabilities are transferred to the LLP, creditors’ consent is mandatory. Written No Objection Certificates (NOCs) must be obtained from all secured and unsecured creditors.
• If the company is regulated by sectoral authorities such as RBI, SEBI, IRDAI, or any other regulator, prior approval from the concerned authority is compulsory before initiating conversion.

Advantages of Conversion

• Reduction in compliance burden — LLPs are not required to conduct board meetings, annual general meetings, or maintain extensive statutory registers like companies.
• Tax efficiency — LLPs are not subject to Dividend Distribution Tax (DDT) and profits distributed to partners are exempt in their hands.
• Continued limited liability protection — partners are liable only to the extent of their capital contribution.
• Greater operational flexibility — internal governance is governed by the LLP Agreement, allowing tailor-made roles and profit-sharing.
• Perpetual succession — changes in partners do not affect existence of the LLP.
• Audit not mandatory unless prescribed limits are crossed (turnover > ₹40 lakhs or contribution > ₹25 lakhs), reducing compliance costs.
• Business continuity — assets, liabilities, licenses, contracts, and approvals automatically vest in the LLP.

Requirements for Conversion

• Unanimous consent of all shareholders.
• Approval from all creditors.
• Passing and filing of a special resolution.
• Filing of LLP incorporation documents with MCA.
• Submission of conversion application in prescribed forms.
• Drafting and execution of LLP Agreement.
• Filing of affidavits, declarations, and statutory statements.

Document Requirements

• Company documents: Certificate of Incorporation, Memorandum and Articles of Association, audited financial statements, board and shareholder resolutions, list of shareholders with consent, and creditor NOCs.
• Proposed partners (existing shareholders): PAN, identity proof, address proof, photographs, and Digital Signature Certificates (DSC).
• Registered office: ownership proof or rent agreement, recent utility bills, and landlord NOC.
• LLP incorporation: approved name, draft LLP Agreement, and statement of assets and liabilities certified by an auditor.

Step-by-Step Process of Conversion

1. Board Meeting: Convene a board meeting where directors approve the conversion proposal and authorize calling a shareholders’ meeting.
2. Extraordinary General Meeting (EGM): Hold an EGM to pass a special resolution approving the conversion.
3. File Special Resolution: File the special resolution with the ROC within the prescribed time.
4. Name Approval: Apply for LLP name approval through the RUN-LLP service on the MCA portal.
5. File FiLLiP & Form 18: After name approval, file FiLLiP (incorporation) and Form 18 (conversion) with all supporting documents, including shareholder consent, creditor NOCs, and financial statements.
6. ROC Scrutiny: ROC reviews the application, verifies compliance, and examines financial and legal aspects.
7. Certificate of Registration: Upon satisfaction, ROC issues a Certificate of Registration for the LLP. From this date, the company is deemed dissolved and the LLP becomes the successor entity.
8. Post-Conversion: File the LLP Agreement and update statutory registrations such as PAN, TAN, GST, IEC, and bank accounts.

Challenges in Conversion

• Obtaining unanimous consent from shareholders and creditors can be difficult and may delay the process.
• Loss of perceived corporate status — some stakeholders view companies as more prestigious than LLPs.
• Restrictions on FDI — foreign investment in LLPs is permitted only in specific sectors under automatic route.
• Tax implications — LLP taxation differs from companies and may be less beneficial in some scenarios.
• Certain licenses and approvals may not transfer automatically and might require reapplication.
• Perception risk — stakeholders may see conversion as a step-down if not communicated properly.

Frequently Asked Questions