PVT LTD TO LLP ; SHARE CAPITAL TO PARTNERS FUND TREATMENT

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Varinder

Manager

23 Points Posted on 26 July 2023

Hi , I purchased 50% shares of a pvt ltd company in April 2017 for Rs. 50,000 as Share Purchase & Rs.5,00,000 as premium on/for purchase of shares .

That company was just converted to a LLP in March 2023 .

While Filing my personal returns my accountant told me that Rs.50,000 will be transfered to Partner's Fund/Capital AC from Share Capital but the Amount of Rs.5,00,000/- i.e premium on/for purchase of shares will become a capital loss for me .

Is there any other treatement for this in case I wish to sell my share in partnership at a higher premium in future ; in short want to avoid capital loss .

Replies (5)

Quick Summary

This discussion explores the tax implications of converting a private limited company (Pvt Ltd) to a Limited Liability Partnership (LLP), specifically concerning share capital and premium paid. When a Pvt Ltd company converts to an LLP, the original share structure is replaced by partnership interests. The discussion highlights that share premium paid by an individual shareholder may be treated as a capital loss upon conversion, while the original share capital is transferred to the partner's fund. It also touches upon how capital gains are calculated when selling partnership interests in the newly formed LLP.

Nikita Agarwal

Semi Qualified CA

2822 Points Posted on 26 July 2023

In an LLP the concept of shares does not exists. Instead of shares LLPs have ownership rights or partnership interests. So share premium cannot be directly transferred to the LLP as a part of conversion. process.
During conversion the entire share capital of a pvt co. will be transferred to LLP along with reserves and surplus. Share premium account was a part of R&S so it will also be transferred to LLP as capital. But as per regulation premium account cannot be transferred directly and it will be transferred to GENERAL RESERVES and this reserves become part of capital contribution.

Varinder

Manager

23 Points Posted on 26 July 2023

Hello Mam,

Thank you for assistance .

My question is in respect to my Individual capacity not as per firm's view .

As informed I purchased Shares Worth Rs.50,000/- & payed Rs. 5,00,000/- as premium to the buyer in 2017 , then the whole company is now concerted to LLP in 2023 , now let's suppose , I sell my Partnership to someone after 3 years for Rs. 10,00,000/- , now will I Pay taxes on Rs.9,50,000/- (10 Lakh - 50 Thousand ) or Rs.4,50,000/- ( 10 Lakh - 5.5 Lakh )

Please advise

Nikita Agarwal

Semi Qualified CA

2822 Points Posted on 26 July 2023

Shares will no longer exists after the conversion.
so you cannot sale your shares after 3 years yo anyone

sonam vaswani

22 Points Posted on 18 April 2025

First of all, LLP would pay tax u/s 56 on securities premium transferred from company to LLP. For shareholder (converted partner into LLP), capital gain would be calculated in year of conversion of all conditions mentioned in section 47(xiiib) not fulfilled at the time of conversion. In your case, sale consideration would be value of capital in LLP i.e 5,50,000 and cost of acquisition would also be the same (5,50,000). While selling your partnership interest, capital gain will be calculated as difference of actual sale consideration received and COA of LLP interest which will again be 5,50,000 in your case.

Aashok Kumar Sharma

Finance/Compliance Consultant

75671 Points Posted on 06 November 2026

For your individual position on conversion:

• If the conversion meets Sec 47(xiiib), the shares you held are replaced by your capital or profit share in the LLP, with no capital gains on conversion.

• Your cost of acquisition of the LLP interest = your cost of the shares (Rs 50,000 face value plus the Rs 5,00,000 premium you paid; the premium is part of your purchase cost) (Sec 49(1)(iii)(e)). The holding period includes the period you held the shares (Sec 2(42A)).

• In the LLP's books, your capital account will usually be credited with your share of net assets (book value), not your purchase price. That's an accounting figure. For your tax cost, keep a working showing Rs 5.5 lakh.

• If conditions are breached later (e.g. you stop holding at least 50% profit share within 5 years), the LLP's exemption is withdrawn (Sec 47A(4)), and the gain is taxed in the LLP's hands. Not yours as a shareholder, but check your own exemption terms.

• On exit from the LLP later, your gain = what you receive minus Rs 5.5 lakh (with indexation if eligible for that period).