Conversion into

Limited Liability
Partnership

- Hrishikesh Balasubramaniam
- Nisarg Jaiswal
- Chirag Chaudhury
Articled Assistants , C.R. Sharedalal & Co.
C.R. Sharedalal & Co.
 Conversion into Limited Liability
Partnership
Who can Convert?

C.R. Sharedalal & Co.

Who can convert?

Partnership Firm
Private Company
Unlisted Public Company

C.R. Sharedalal & Co.

 Conversion into Limited Liability
Partnership
Who can Convert?

C.R. Sharedalal & Co.

No Step Time frame Process

(days)

1 DPIN (Designated Partner 5 Apply for DPIN and get a

Identification Number)
Approved DPIN is a pre-
requisite for incorporation
process
provisional DPIN
Certification/Attestation of
director's personal details
Sending the same to the
MCA Cell and getting it
approved

2 Application for Name 3 On conversion of Firm only

Availability addition of the word LLP in
existing name of the Firm as
Filing of Form 1 last word is allowed

C.R. Sharedalal & Co.

No Step Timeframe Process

(days)

3 Documents required for incorporation 2 Drafting the LLP Agreement

of an LLP and after getting it vetted by
LLP Agreement Promoters, sending it for
Form 2 printing.
(Statement by Promoter) Important attachments for Form
Form 3 17
(Information regarding the LLP Statement of partners
Agreement) Statement of Assets and
Form 4 & Form 9 Liabilities of the company duly
(Notice of Consent & Appointment of certified as true and correct by
Designated Partners with their the C.A.
personal details) List of all the unsecured
Subscription sheet signed by the creditors along with their
promoters consent to conversion
Duly stamped LLP Agreement Approval from any other
Proof of Address of Registered body/authority, if required
Office Processing of e-Forms

C.R. Sharedalal & Co.

No Step Process
Time
frame
(days)

4 Final Process:
Filing all the above documents 5 Online uploading of e-form
Payment of registration fees
with the RoC. Issue of certificate of
Follow up with the RoC Making incorporation.
changes in LLP Agreement.
Other Incorporation documents
as suggested by the RoC.

C.R. Sharedalal & Co.

 Conversion into Limited Liability
Partnership
Who can Convert?

C.R. Sharedalal & Co.

Partnership LLP (1/2)
Existing Partnership Firm can be
converted into LLP and all the
assets, liabilities and business of
existing partnership firm will vest
in to LLP.
The conversion of partnership
into LLP will attract tax liability.
All the existing partners must be
the partners of LLP.
C.R. Sharedalal & Co.
Partnership LLP (2/2)

Relevant Provisions:
Chapter X Section 55 of LLP Act,
2008.
Second Schedule of the LLP Act,
2008.
Rule 38 of LLP Rules, 2009.

C.R. Sharedalal & Co.

 Conversion into Limited Liability
Partnership
Who can Convert?

C.R. Sharedalal & Co.

Company LLP (1/2)
Existing Private and Public Limited
Company (except Listed Company) can be
converted into LLP and all the assets,
liabilities and business of existing
Company will vest in to LLP.
If the security interest subsists on the
assets of the eligible company then it
cannot be converted into LLP. Company
which has taken secured loan of any
nature which is outstanding as on the date
of conversion cannot be converted into
LLP.
C.R. Sharedalal & Co.
Company LLP (2/2)
Allthe existing shareholders must be the
partners of LLP as per LLP Act,2008.
Company which has repaid loans must
ensure that the necessary formality of the
Companies Act,1956 is complete and the
charge is removed.
Relevant Provisions:
Chapter X Section 56 and 57 of LLP Act, 2008.
Third and Fourth Schedule of the LLP Act, 2008.
Rule 39 and 40 of LLP Rules, 2009.

C.R. Sharedalal & Co.

 Conversion into Limited Liability
Partnership
Who can Convert?

C.R. Sharedalal & Co.

Important Considerations for
Conversion to LLP-(1/3)
o Filing of Form with Registrar of
LLP.
Form 7 & Form 1 and
Form 17/18 & Form 2
o All
the numbers of the
Company/Partners of the Firm
shall be the partner in LLP(and no
one else) with the same
Capital/Contribution Ratio.
C.R. Sharedalal & Co.
Important Considerations for
Conversion to LLP-(2/3)
o Consent of all members of the
Company/Partners of the Firm shall be
obtained
o No security interest on the assets shall
be subsisting or in force on the date of
application.
o No Objection Certificate from unsecured
creditors.
o Statement of Assets & Liabilities certified
by Auditor of not more than 30 days prior
to the date of the conversion application.
C.R. Sharedalal & Co.
Important Considerations for
Conversion to LLP-(3/3)

o All due returns of Registrar of

Companies, Income Tax and other Tax
authorities shall be filed.
o No Objection Certificate from other
authorities for conversion, if required.
o After receiving Conversion Certificate
the same to be filed within 15 days with
Registrar of Companies in Form-14.

C.R. Sharedalal & Co.

 Conversion into Limited Liability
Partnership
Who can Convert?

C.R. Sharedalal & Co.

Tax issues on conversion of
a
Company into LLP
During Conversion
When capital gain on conversion
will be exempt?
After Conversion
Tax rate:
Eligibility to claim deductions:-

C.R. Sharedalal & Co.

 When capital gain on conversion will be
EXEMPT?

As per section 47(xiiib) of income tax

act,1961:-
Any transfer of a capital asset or intangible
asset or share or shares held in the
company by a share holder as a result of
conversion of the company into a LLP in
accordance with the provision47(xiiib) doesnt
of Section 56 or Section 57apply
of to
partnership firms
the LLP Act, 2008 : converting to LLP
thus partnership
firms will have to
Provides that :- pay CG tax.
C.R. Sharedalal & Co.
(a)
ALL the assets &
liability of the Asset & liability of
company the LLP.
immediately
before the
conversion

(b)
ALL the (1) Become partner of LLP
(2) And their capital
shareholders of
contribution and their profit
the company sharing ratio are in the
immediately same proportion as their
before the share holding in the
conversion company on the date of
conversion.
C.R. Sharedalal & Co.
(c) Share holders of the Company do not receive:-

Any consideration or benefit,

directly or indirectly, in any form or
manner, other than by way of
share in profit and capital
contribution in the LLP.

1year
(d)

Aggregate of the profit sharing

ratio of the shareholders of the
company in LLP should not be less
than 50% at any time during
the period of 5 years from the
date of conversion
C.R. Sharedalal & Co.
(e)

(2008-09) (2009-10) (2010-11) (2011-12) (year of

conversion)

68 Lakhs 59 Lakhs 52 Lakhs 58 Lakhs 8

Lakhs

The total sales, turnover or gross

receipts in business of the company in any
of the three previous years preceding
the previous year in which the conversion
takes place does not exceeds 60 lakh
rupees.

C.R. Sharedalal & Co.

(f)

Year of Conversion

No amount is paid, directly or indirectly, to

any partner out of balance of accumulated
profits (i.e. General Reserve, etc.) standing in
the accounts of the company on the date of
conversion for a period of three years
from the date of conversion.

C.R. Sharedalal & Co.

After Conversion

Tax rate:
30% flat tax rate + 3% education cess
No Minimum Alternate Tax & Dividend Distribution Tax

C.R. Sharedalal & Co.

Following deductions are allowed to
LLP*

1. Interest paid to partners, provided such

interest is authorized by the LLP Agreement
(Section 40(b)).
2. Any salary, bonus, commission, or
remuneration (by whatever name called) to a
partner will be allowed as a deduction if it is
paid to a working partner who is an
individual.
3. The remuneration paid to such working
partner must be authorized by the LLP
Agreement and the amount of remuneration
must not exceed the given limits. ((Section
40(b)). C.R. Sharedalal & Co.
 1. There is a written LLP Agreement.
2. The individual shares of the partners should be very clearly
specified in the deed.
3. A certified copy of LLP Agreement must be submitted with
the return of income of the LLP of the previous year in which
the partnership was formed.
4. Revised LLP agreement should be submitted when ever
there is a change in the constitution of firm or profit sharing
ratio.
5. There should not be any failure on the part of the LLP while
attending to notices given by the Income Tax Officer for
completion of the assessment of the LLP.

*Conditions of Section 184 of Income Tax Act

should be satisfied

C.R. Sharedalal & Co.

Tax issues on conversion of a Company/firm
into LLP - Relevant provisions of Income Tax
Act (1/2)
No. Section Subject Effective
Date
1 Section 32(1) Depreciation in the year A.Y. 2011-
5th Proviso of conversion prorate
allocation
2012
between the company
and LLP
2 Section 35 Amortization of A.Y. 2011-
DDA (4A) expenditure incurred on
Voluntary Retirement
Scheme LLP eligible to
2012
claim deduction for
balance period
3 Section 43(1) Actual cost where A.Y. 2011-
Explanation deduction is allowed u/s
13(b)(iii) 35AD cost will
2012
be Nil
C.R. Sharedalal & Co.
Tax issues on conversion of a Company/firm
into LLP - Relevant provisions of Income Tax
Act (2/2)
No. Section Subject Effective
Date
5 Section 49(1) Cost to previous owner A.Y. 1999-
(iii)(e) cost in the hands of LLP
will be cost in the hands
2000
of company.
6 Section 49 Rights of partner in LLP A.Y. 2011-
(2AAA) Cost of acquisition
2012
7 Section 72A Carry forward of business A.Y. 2011-
(6A) loss and unabsorbed
2012
depreciation
LOSS NOT C/F IN CASE
of PARTERNSHIP FIRM
CONVERTING TO LLP
8 Section Carry forward of MAT A.Y. 2011-
115JAAA(7) credit of Company not
available to LLP 2012
C.R. Sharedalal & Co.
 Conversion into Limited Liability
Partnership
Who can Convert?

C.R. Sharedalal & Co.

Stamp Duty Implications

As per Section 58 of LLP Act,

2008, all the assets and liabilities
vest into LLP. There is no transfer
of assets and liabilities and hence
no Stamp Duty is required to be
paid.

C.R. Sharedalal & Co.

 Conversion into Limited Liability
Partnership
Who can Convert?

C.R. Sharedalal & Co.

 Key Benefits
No Limit on number of shareholders/partners unlike
private limited companies (shareholders limited to 50),
an LLP can have unlimited number of partners.
Minimal Compliance Level & Cost effective model there
is no need of compliances related to meetings and
maintenance of huge statutory records.
Automatic transfer - All the assets and liabilities of the
Company immediately before the conversion become
the assets and liabilities of the LLP.
The goodwill of the Company and its brand value is kept
intact and continues to enjoy the previous success story
with legal recognition
Carry Forward and Set off Losses and Unabsorbed
Depreciation the accumulated loss and unabsorbed
depreciation of Company is deemed to be loss/
depreciation of the successor LLP for the previous year
in which conversion was effected.C.R.Thus such
Sharedalal & Co.loss can be
 Drawbacks
LLP being recently introduced suffers from lack of
awareness & recognition.
Requirement of amending LLP Agreement, on
happening of various events, creates frustration.
Heavy penalties are prescribed for non compliance.
Partners salary beyond specified limits is not allowed
as deduction , for tax purposes.
Benefits of Carry forward of losses
and Capital Gains Tax Exemption
are not available in case of a
partnership firm converting to LLP.

C.R. Sharedalal & Co.