Conversion Into Llp In India
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Conversion of a private/public limited company to an LLP provides several key benefits: 1) LLPs pay lower taxes (30.9% for LLPs vs. 33.99% for companies) and have more flexible distribution of profits among partners. 2) LLPs have reduced compliance requirements compared to companies, such as no audit requirement if capital is below Rs. 25 lakh. 3) All assets and liabilities automatically transfer to the LLP with no stamp duty or capital gains tax in many cases. 4) Losses can be carried forward to the LLP, providing continued tax benefits.
Conversion Into Llp In India
- 1. Benefits of Conversion of Private/Unlisted Public Limited Company into LLP 1. Taxation LLPs are taxed like general partnership firms. LLPs pay an effective tax of 30.9%. They are exempted from 10% surcharge. LLPs tax payment is lower than that of companies, which pay a 33.99% tax on profits. The tax will be imposed only on 10% or 40% of the LLP’s income, since the firm will be allowed to pay the balance 90% or 60% to the partners as remuneration. This means, the partners will have to pay tax on the amount paid to them. So, there will be no double taxation of income. Unlike Pvt. Or Public Companies, no requirement for payment of Dividend distribution/Corporation Tax on distribution of income/profits among partners and there is no requirement as to Minimum Alternate Tax. 2. No Audit requirement Audit is not required unless capital exceeding Rs. 25 lakh or turnover exceeding Rs. 60 lakh. 3. Automatic transfer All the assets and liabilities of the Company immediately before the conversion become the assets and liabilities of the LLP. 4. No Stamp Duty All movable and immovable properties of the company automatically vest in the LLP. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid. 5. No Capital Gain Tax No Capital Gains tax shall be charged on transfer of property from Company to LLP, subject to the following conditions: The total sales, turnover or gross receipts in business of the company do not exceed sixty lakh rupees in any of the three preceding previous years; The shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company; No consideration other than share in profit and capital contribution in the LLP arises to partners;
- 2. The erstwhile shareholders of the company continue to be entitled to receive at least 50 per cent of the profits of the LLP for a period of 5 years from the date of conversion; All assets and liabilities of the company become the assets and liabilities of the LLP; and 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. 6. 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. Thus such loss can be carried for further eight years in the hands of the successor LLP. 7. No Limit on number of shareholders/partners Unlike private limited companies (shareholders limited to 50), an LLP can have unlimited number of partners. 8. Minimal Compliance Level & Cost effective model There is no need of compliances related to meetings and maintenance of huge statutory records. 9. Continuation of Brand Value The goodwill of the Company and its brand value is kept intact and continues to enjoy the previous success story with legal recognition. ******
- 3. Conversion of Private/Public Limited Company into LLP Key requirements: On Conversion, all the members/shareholders of the company shall become partners of the LLP in the same proportion in which their capital accounts stood in the books of the company on the date of the conversion. Upto date filing of Income tax returns & Annual returns with RoC Consent of all the unsecured creditors for the proposed conversion The partners receive consideration only by way of allotment of shares in LLP Minimum 2 Designated Partners Atleast 1 of the designated partners shall be an Indian Resident If a body corporate is a partner, it has to nominate a natural person as its nominee The Partners and Designated Partners can be same person There is no concept of share capital, but there has to be some sort of contribution from each partner DPIN (Designated Partner Identification Number) for all the Partners DSC (Digital Signature Certificate) for two of the Designated Partners Steps in Conversion of a Private Limited Company into an LLP Step Steps Timeframe Processing No. (Working days) 1. DPIN ( Designated Partner Apply for DPIN and get a provisional DPIN Identification Number) 5 Certification/Attestation of Director’s Approved DPIN is a pre-requisite personal details for incorporation process Sending the same to the MCA Cell and getting it approved 2. Application for Name Availability on conversion of private company only 3 deletion of words “Private/Public Limited” Filing of Form 1 and addition of the word “LLP” in existing name of the company as last word are allowed 3. Documents required for Drafting the LLP Agreement and after Conversion getting it vetted by Promoters, sending it 2 for printing LLP Agreement Important attachments for Form 18 Form 18 (Application for Conversion) Statement of shareholders
- 4. Form 2 Statement of Assets and Liabilities of (Statement by Promoter) the company duly certified as true and correct by the auditor Form 3 (Information regarding the LLP List of all the unsecured creditors along Agreement) with their consent Approval from any other Form 4 & Form 9 body/authority, if required. (Notice of Consent & Appointment of Designated Partners with their Processing of eForms personal details) Subscription sheet signed by the promoters Duly stamped LLP Agreement Proof of Address of Registered Office 4. Final Process: Online uploading of e-Forms 5 Filing all the above documents Payment of Registration fees with the ROC, follow up with the ROC Issue of Certificate of Incorporation Making changes in LLP Agreement/ other conversion documents as suggested by the ROC
- 5. Tax Savings under LLP STRUCTURE as compared with PRIVATE/PUBLIC LIMITED COMPANY (When the annual net Profit is upto 25 Lacs) Rs. 6,34,000 Savings PRIVATE LIMITED COMPANY LIMITED LIABILITY PARTNERSHIP (LLP) Net Profit Total Tax outlay from Net Profit Taxation Slabs Total Tax outlay the Company Slabs from the LLP & Partners 10 % Taxed in the hands of 31% on Rs. 30,000 = Rs. 9,300 Rs.8,25,000 Rs. 3 Lacs LLP Income Tax = 90 % Distributed to Rs. 2,70,000 is distributed among (33% on Rs. 25 Lacs) Partners as Remuneration the Partners (Net Profit available for If equal distribution among Partners: distribution as Dividend= Rs. 1.35 Lac each Rs. 16.75 Lacs) 40 % Taxed in the hands of 31% on Rs. 8,80,000 = Rs. 2,72,800 Dividend Distribution Tax= 2,68,000 Rs. 22 Lacs LLP 60 % Distributed to Rs. 13,20,000 is distributed (16% on Rs. 16.75 Lacs) among the Partners= Partners as Remuneration Rs. 6,60,000 each Hence total remuneration paid to each Partner is Rs. 7,95,000 (1.35 lac+ 660K) Each Partner to pay tax on Rs. 7,95,000 Rs. 1,86,000 -Upto Rs. 1.6 lac =Nil -On 3.4 lac = Rs. 34 k (Rs. 93,000 each) - On 2.95 lacs = Rs. 59 k Rs. 10,93,000 Rs. 4,58,000 (If one of the partner is Female/Senior citizen tax will be less than Rs. 4,50,000 TOTAL SAVING UNDER THE LLP MODEL IS RS. 6,34,000/RS. 6,30,000 (Rs. 10,93,000 – Rs. 4,58,000= Rs. 6,34,000)