In India, many startups and small businesses initially register as Partnership Firms or LLPs due to their ease of formation, minimal compliance, and lower costs. LLPs, for instance, are exempt from appointing statutory auditors until their turnover exceeds ₹40 lakhs, and are not bound by filings like INC-20A, DPT-3, or MGT-14, which are mandatory for private limited companies. They also benefit from comparatively lower government fees and penalties.
However, as the business expands, the need for formal corporate structure, access to equity capital, and greater market credibility often lead entrepreneurs to consider converting their LLP or Partnership Firm into a Private Limited Company. A private company structure offers greater flexibility for raising investments, bringing on board institutional investors, and scaling operations.
Legal Framework for LLP to Pvt Ltd Conversion
The Companies Act, 2013, under Section 366, facilitates the conversion of LLPs and other entities into a company limited by shares. The process involves filing Web Form URC-1 as per Rule 3(2) of the Companies (Authorised to Register) Rules, 2014. The LLP must also file SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) to formally incorporate the private limited company.
Under these provisions, any business entity with two or more members—including LLPs, firms, societies, or trusts—can convert into a private company, provided it complies with all applicable legal requirements.
Pre-Conditions for Conversion of LLP to Private Limited Company
Before initiating the conversion process, certain mandatory conditions must be met:
- The LLP should have at least two designated partners.
- Post-conversion, the new company must have a minimum of two directors, one of whom should be a resident of India.
- All partners in the LLP must become shareholders in the Private Limited Company.
- If conversion is being done under Section 366, the LLP must have a minimum of seven partners.
- The LLP must not have any outstanding secured loans or charges on its assets.
- The LLP must be duly registered under the LLP Act, 2008, and must have consistently filed its income tax returns, MCA compliance forms, and annual statements.
Why Convert an LLP or Partnership Firm into a Private Limited Company?
- Access to Equity Funding: Private limited companies can issue equity shares, preference shares, and convertible securities—making them more attractive to investors.
- Improved Credibility: The corporate structure adds credibility in the eyes of clients, financial institutions, and investors.
- Limited Liability with Governance Structure: While LLPs also offer limited liability, a private limited company provides a well-defined governance structure regulated by the Companies Act.
- Investor Confidence: Venture capitalists and angel investors prefer investing in private limited companies due to better regulatory oversight and transparency.
- Opportunities for ESOPs & Expansion: Private limited companies can issue Employee Stock Options (ESOPs) and expand internationally with ease.
Process for Conversion of LLP into Private Limited Company
Converting a Limited Liability Partnership (LLP) into a Private Limited Company is a structured legal process governed by the Companies Act, 2013. This transformation provides enhanced access to equity funding, formal governance structure, and greater market credibility. Below is a detailed, step-by-step explanation of the conversion process as prescribed by Indian corporate law.
Step 1: Reservation of Company Name using RUN Form
The first formal step in the conversion process involves reserving a suitable and distinguishable name for the proposed Private Limited Company through the RUN (Reserve Unique Name) web form on the Ministry of Corporate Affairs (MCA) portal.
- The proposed company name must end with the suffix “Private Limited.”
- It must be clearly indicated in the RUN form that the reservation is being sought for the conversion of an LLP into a Private Company.
- The existing LLPIN (Limited Liability Partnership Identification Number) should be entered in the remarks column.
- Supporting documents, such as a board resolution approving the conversion, may be attached if available.
Illustration:
If the LLP is named Finwise Solutions LLP, the proposed private company name could be Finwise Solutions Private Limited.
Once the name is approved by the Registrar of Companies (ROC), the next steps can proceed within the stipulated timelines.
Step 2: Advertisement of Public Notice (Form URC-2) and Consent of Creditors
After obtaining name approval, the LLP is required to publish a public notice in Form URC-2, as prescribed under the Companies (Authorised to Register) Rules, 2014.
Key requirements:
- The notice must be published in two newspapers: one in English and one in the principal vernacular language of the district where the LLP’s registered office is located.
- The publication must clearly state the proposed conversion from LLP to Private Limited Company and invite public objections, if any.
- A minimum 21-day window must be provided from the date of publication for the submission of objections.
In parallel, the LLP must ensure the following:
- Written consent has been obtained from all secured creditors, if any.
- Copies of both newspaper advertisements are retained for attachment with the subsequent filing of Form URC-1.
- Any objections received must be resolved and addressed prior to filing.
Non-compliance with this requirement can lead to rejection or delay in approval of the conversion by the Registrar of Companies.
Step 3: Filing of Web Form URC-1
The conversion application must be made using Form URC-1, which is the statutory form for registering an existing LLP as a company under Section 366 of the Companies Act, 2013.
Important points to note:
- URC-1 must be filed within 20 days of name approval through SPICe+ Part A. Delays beyond this period will render the name reservation invalid, necessitating a fresh application.
- The form must be digitally signed and accompanied by a certificate from a practicing Chartered Accountant, Company Secretary, or Cost Accountant, confirming compliance with applicable provisions of the Companies Act, 2013 and the LLP Act, 2008.
Required Attachments with URC-1:
- Consent from all LLP partners for conversion.
- Statement of accounts (not older than 30 days), certified by a Chartered Accountant.
- Copy of the latest filed Income Tax Return.
- No Objection Certificate (NOC) from secured creditors, if applicable.
- List of all proposed first directors and shareholders, with their respective consents in Form DIR-2.
- Affidavits from each proposed director affirming compliance with Section 164 (disqualification clause).
- Copy of original LLP Agreement and Certificate of Incorporation of LLP.
- Copies of the newspaper publications as proof of advertisement in Form URC-2.
Upon submission, Form URC-1 is linked with SPICe+ for further incorporation processes and is processed by the Registrar of Companies (ROC)/Central Registration Centre (CRC) under a non-STP (Straight Through Process) mechanism.
Step 4: Filing of SPICe+ and Linked Incorporation Forms
Once URC-1 is successfully filed and processed, the applicant must proceed with the incorporation forms for registering the new Private Limited Company.
The incorporation process must be carried out using the SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) integrated web form, which comprises:
- SPICe+ Part A (for name reservation, if not done earlier),
- SPICe+ Part B (for incorporation details, director information, capital structure, etc.),
- INC-33 (Electronic Memorandum of Association),
- INC-34 (Electronic Articles of Association),
- AGILE-PRO-S (for registration with GST, ESIC, EPFO, professional tax, bank account),
- INC-9 (Declaration by directors and subscribers).
Attachments to SPICe+:
- DIR-2 – Consent to act as Director.
- INC-9 – Declarations by Subscribers and Directors.
- PAN and Aadhaar cards of all proposed directors.
- Proof of Registered Office Address (latest utility bill and rent agreement/sale deed).
- No Objection Certificate (NOC) from property owner if the premises are rented.
- Board Resolution or Partner Consent authorizing the conversion.
Once all documents are filed and verified, the Certificate of Incorporation is issued by the Registrar of Companies, officially recognizing the LLP’s conversion into a Private Limited Company.
Note: If any of the LLP partners do not possess a Director Identification Number (DIN), there is no need to file DIR-3 separately. The DIN will be auto-generated and allotted at the time of SPICe+ filing.
Post-Incorporation Activities After Conversion
Once the LLP has successfully converted into a Private Limited Company and received the Certificate of Incorporation from the Registrar of Companies (RoC), several compliance tasks must be completed to ensure the new company is operationally and legally aligned.
Key Post-Incorporation Steps:
- Apply for a New PAN and TAN
The newly incorporated entity must obtain a fresh Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) in the name of the company through the Income Tax Department. - Open a Company Bank Account
A current account must be opened in the name of the Private Limited Company using the incorporation documents (Certificate of Incorporation, PAN, AoA, MoA, Board Resolution, etc.) for business transactions. - Update Statutory Registrations
All existing business registrations such as GST, Professional Tax, Shops & Establishment license, etc., should be amended or re-applied to reflect the new company name and CIN (Corporate Identification Number). - Update Agreements and Contracts
Any active contracts, leases, or vendor/supplier agreements must be modified to include the new company name and structure. - Statutory Registers and Records
The company must maintain statutory registers as prescribed under the Companies Act, 2013, including Registers of Members, Directors, and Share Transfers. - Commencement of Business Filing (INC-20A)
If the company has received subscription money, it must file Form INC-20A declaring the commencement of business within 180 days of incorporation.
Why Should LLPs Consider Converting into a Private Limited Company?
There are several strategic, tax, and compliance advantages to converting an LLP into a Private Limited Company, particularly for businesses aiming for accelerated growth, investment, and market credibility.
1. Favorable Tax Regime
Private Limited Companies currently benefit from a lower tax rate of 22% (plus applicable surcharge and cess) under Section 115BAA of the Income Tax Act. In contrast, LLPs are taxed at a flat rate of 30%, making company structure more tax-efficient for profitable enterprises.
2. Access to Equity-Based Funding
Venture Capitalists (VCs), Private Equity (PE) firms, and Angel Investors typically prefer investing in companies rather than LLPs. This is due to the ability of companies to issue equity shares, convertible instruments, and provide structured exit options—which are not feasible in an LLP setup.
3. Multiple Fundraising Instruments
Private companies have greater flexibility in raising funds through:
- Equity Shares
- Preference Shares
- Debentures
- Convertible Notes
- Employee Stock Option Plans (ESOPs)
- Deposits under controlled conditions
Such fundraising tools are not available under the LLP framework, thereby limiting growth opportunities for capital-intensive ventures.
4. Improved Creditworthiness
Banks, NBFCs, and financial institutions tend to perceive Private Limited Companies as more structured and transparent due to mandatory compliance and disclosure requirements. This enhances the creditworthiness of the business and eases access to loans and credit facilities.
Conclusion
Converting an LLP into a Private Limited Company can be a strategic move for businesses aiming for scalability, structured governance, and access to broader funding channels. With reduced corporate tax rates, eligibility for equity-based fundraising, and improved credibility among investors and lenders, this transition offers long-term operational advantages. However, the process involves intricate regulatory filings, documentation, and compliance obligations under the Companies Act, 2013.
For a seamless and legally sound conversion process, consult the experts at CertificationsBay. Our team of professionals ensures end-to-end assistance—right from evaluating your business structure, preparing legal documentation, and filing the necessary MCA forms to post-incorporation compliance.
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Frequently Asked Questions (FAQs)
1. Is conversion from LLP to Private Limited Company mandatory for startups?
No, the conversion is not mandatory. However, it is recommended for startups seeking equity funding, improved legal structure, or tax benefits.
2. Can a Private Limited Company have the same name as the LLP after conversion?
Yes, the name can remain similar, but it must include the suffix “Private Limited.” Approval must be taken via the RUN service on the MCA portal.
3. How long does the LLP to Private Company conversion process take?
The process typically takes 4–6 weeks, subject to MCA approvals and document readiness.
4. Do all partners in the LLP need to become shareholders in the new company?
Yes, all existing partners must become shareholders in the Private Limited Company during conversion.
5. Can I apply for Director Identification Numbers (DINs) during conversion?
Yes, DINs can be allotted through the SPICe+ form during the incorporation of the new company.
6. Are there any tax implications of conversion?
The conversion itself does not trigger tax implications if properly structured, but it’s important to consult with a professional to ensure compliance with the Income Tax Act.
7. Can foreign nationals be directors in the new Private Limited Company?
Yes, but at least one director must be a resident Indian under the Companies Act, 2013.
