Conversion of pvt ltd to llp

In case private company is converted into LLP and the turnover /sales/gross receipts exceeds Rs 60 lakhs in any of the three years preeceding the previous year in which conversion takes place than the transfer of capital asset will attract capital gains.

LLP contains the benefit of Limited liability to partner and Flexibility of Partnership at a low compliance cost.

Owing to flexibility in its structure and operation, it would be useful for small and medium enterprises, in general, and for the enterprises in services sector and professional firms, in particular.  A registered limited company in India (Private or Public) has a lot of complex formalities and incurs additional overheads for managing affairs including mandatory board meeting, maintenance of statutory records, filling of e-forms with MCA etc. You wouldn't have to deal with all these in an LLP.

I will be discussing the legal conditions later . Before that you should know about the Compliance benefits under Income Tax:

• Saving of Dividend Distribution Tax. (There is no provision of Dividend Distribution Tax in LLP)
• Saving of MAT Tax. (Because LLP don’t give credit of MAT)
• Saving of Income Tax due to Interest and remuneration payable to partners as salary payable to directors.

Following are the conditions , which if satisfied then the transfer of capital asset or intangible asset to LLP or any transfer of share or shares held in company by a share holder on conversion of Company into LLP shall not be regarded as transfer:

1. Turnover Limit : The Total sales, turnover or gross receipts in business of the company do not exceed Sixty Lacs (60 Lacs) Rupees in any of the three preceding previous years
2.  Capital Contribution and Profit Sharing Ration on Conversion: 
   The Capital Contribution and Profit Sharing ration of the shareholders of company should be in the same proportion as their shareholding in the company as on the date of Conversion.
3. Profit Sharing Ration after conversion​​​​​​​: The erstwhile shareholders of the company continue to be entitled to receive at least 50 per cent in aggregate of the profits of the LLP for a period of 5 years from the date of conversion
4.  Assets and Liabilities : All assets and liabilities of the company become the assets and liabilities of the llp.
5.  All the shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company.
6. No other consideration to partners: No consideration other than share in profit and capital contribution in the LLP arises to partners.
7.  Lastly , 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

Remember , if all the above conditions 1 to 6 are complied with, the conversion shall not attract capital gains tax either for the company or the Successor LLP or for the shareholders of the Company, who became partner in the successor LLP and get share of profits and capital in the LLP in lieu of their shares in the company.

Also, for any of the above conditions  1 to 6, is not complied with, then as per provisions of Section 47 A (4) such transfer of Capital Assets & Intangible assets deemed to be liable to Capital gains of the successor LLP or the Shareholders of the predecessor company in the previous year in which such non-compliance took place.

CHECKS to do before the conversion :

• The partners of the limited liability partnership to which it converts comprise all the shareholders of the company and no one else. 

• Every Designated Partner is required to obtain a DIN from the Central Government.
• Whether up to date Income-tax return is filed under the Income-tax Act, 1961.
• All the E-FORMS which are required for the purpose of incorporating the LLP are filed electronically through the medium of Internet; it is not possible to sign them manually. Therefore, for the purpose of signing these forms, the Designated Partner of the proposed LLP needs to obtain a Digital Signature Certificate (DSC) from government recognized DSA’S.
• Also there will be NO SECURITY INTEREST subsisting or in force at the time of application in the assets of the Company. (As per Third Schedule).
• Whether any proceeding by or against the company is pending in any Court or Tribunal or any other Authority.
• Whether any conviction, ruling, order, judgment of any Court, Tribunal or other authority in favour of or against the company is subsisting.
• Whether company have Creditors if, yes then NOC from Unsecured creditors.
• Whether any clearance, approval or permission for conversion of the company into limited liability partnership is required from anybody/ authority.
• Whether any prosecution initiated against or show cause notice received by the company for alleged offences under the Companies Act, 1956

Hope this helps you ! For more queries in the documents required for this tedious conversion I'd recommend you to visit https://www.wazzeer.com/ . It is a smart platform for Legal, Compliance and Accounting for SME's and startups helping you to get your work done smoothly.

we are a trading firm and do mot have any capital assets in the name of the firm.so it possible to make the conversion without any dificulty?

In that case there will be no capital gains but still tax liability will arise under 56(2)(x).

sir there is no capital assests in the name of the firm.

so will there be any problem?is there any more restrictions?

With regards to your query for conversion of Private Limited Company it is better to connect with a practising professional. You may reach to our experts for free consultation at 89806 85509 or support @ legalwiz.in. Get all your queries resolved at LegalWiz.in for one stop solutions.