Converting our LLP into a private limited company

Your LLP has outgrown its form. Maybe an investor wants shares, maybe you want to give early employees stock options, maybe lenders simply prefer a company. The question is how to get from the LLP you have to a private limited company without starting over.

The Companies Act, 2013 has a route for exactly this. It is called registration of an existing entity under Part I of Chapter XXI, and the key section is section 366. This article walks through that route, the forms, the consents, the newspaper notice and what happens to the LLP at the end.

It covers company law only. We have not been able to confirm from the official texts we checked what the income-tax and stamp-duty effects of this particular conversion are, and the registration fee is not stated in the rule text we opened. Check those separately with your CA before you commit.

The route in one paragraph

An LLP applies to the Registrar of Companies in Form URC-1, with a set of documents, after publishing a notice in two newspapers. If the Registrar is satisfied, the Registrar issues a certificate of incorporation in Form INC-11. From that moment the entity is a company, and the Act says the LLP is deemed dissolved under the LLP Act without any further act or deed.

What the law says

Section 366(1) of the Companies Act, 2013 says that for this Part the word "company" includes any partnership firm, limited liability partnership, cooperative society, society or any other business entity formed under another law that applies for registration. So an LLP can apply.

Section 366(2) says such an entity, consisting of two or more members, may register under the Act as an unlimited company, a company limited by shares, or a company limited by guarantee, in the manner prescribed. For most founders the target is a company limited by shares, and that is the one this article follows.

Three conditions in section 366 matter to you:

• A company can be registered as limited by shares only if it has a permanent share capital of fixed amount divided into shares of fixed amount, formed on the principle of having the holders of those shares as its only members (proviso (iii) to section 366(2), Companies Act 2013).
• The entity must not register without the assent of a majority of its members present in person, or by proxy where proxies are allowed, at a general meeting summoned for the purpose (proviso (iv) to section 366(2)). Where the members' liability is not limited by any Act or other law, the Act asks for not less than three-fourths of members present (proviso (v) to section 366(2)).
• An entity with fewer than seven members must register as a private company (proviso (vii) to section 366(2)). A two-partner LLP that wants a private limited company is therefore squarely inside the section.

The rule text also contains a line that says there shall be seven or more members for registration of a company under that sub-rule (the proviso to rule 3(1), Companies (Authorised to Register) Rules 2014). The Act itself says an entity may register with two or more members and that one with fewer than seven registers as a private company, and an Act prevails over a rule made under it. The rule text we opened has not been changed to match. If your LLP has fewer than seven partners, confirm with your CA how the Registrar is applying the two provisions before you start.

Name first

The company needs an approved name before you file. The rules say the entity "after obtaining availability of name in terms of the provisions of section 4 of the Act" files the documents with Form URC-1 (rule 3(2), Companies (Authorised to Register) Rules 2014). The name must end with "Private Limited" (rule 3(2)(a)(vi)(iii)).

The documents behind Form URC-1

For a company limited by shares, rule 3(2)(a) of the Companies (Authorised to Register) Rules 2014 asks you to attach:

• A list of members with their names, addresses and occupations, and the shares each will hold. It must show separately shares allotted for cash and for other than cash, with the source of the consideration. It is drawn up as of a day not more than six clear days before the day you seek registration, and shows the persons who were partners of the LLP on that day.
• Particulars of the proposed first directors: names, DIN, passport number with expiry date if any, residential address, interests in other firms or bodies corporate, and their consent to act as directors.
• An affidavit from each proposed first director that he or she is not disqualified under section 164(1), and that the documents filed are correct, complete and true to the best of knowledge and belief.
• A list of the names and addresses of the partners of the LLP.
• A copy of the deed or other instrument constituting or regulating the entity, verified as the rules require. For an LLP this will be the LLP agreement.
• A statement of the nominal share capital and the number of shares, the number of shares taken and the amount paid on each, and the company name ending in "Private Limited".
• Written consent or no objection certificate from all the secured creditors of the entity.
• Written consent from the majority of members, present in person or by proxy at a general meeting, to registration under this Part.

Rule 3(3) adds a notarised affidavit from all members or partners, saying that if the entity is registered as a company under Part I of Chapter XXI, they will submit the necessary documents or papers to the registering authority for the LLP's dissolution. Section 374(c) of the Companies Act, 2013 requires the same affidavit.

Rule 3(4) says the list of members and directors and the other particulars must be verified by a declaration of any two or more proposed directors, or two or more designated partners of the LLP.

The Form URC-1 attachment list also asks for a copy of the LLP's certificate of registration, a copy of the newspaper advertisement, a certificate from a CA, CS or cost accountant on compliance with the Stamp Act to the extent applicable, a no objection certificate from the Registrar of Firms or Registrar of Companies (LLP), and a statement of accounts certified by an auditor "if applicable". It lists both the consent of a majority of members and, separately, the consent of at least three-fourths of members. If your LLP's partners are not all in agreement, resolve that before you plan the meeting.

The extra filings the rules add

Rule 5 of the Companies (Authorised to Register) Rules 2014 adds more obligations specific to an LLP:

• A statement of accounts, prepared not later than fifteen days before the date you seek registration and certified by the auditor, together with the audited financial statements of the previous year wherever applicable, attached to Form URC-1 (rule 5(ii)). The attachment list in Form URC-1 itself refers to accounts prepared "not later than 6 days" before the application. The rule says fifteen days and the form says six, so the two do not match. The rule is the binding text, and accounts made up within six days also meet the fifteen-day limit, so prepare to the shorter period and check the form on the MCA portal when you file.
• A notice to the Registrar (LLP) under which the LLP was registered. That Registrar must raise any objection within twenty-one days of the notice, failing which no objection is presumed (rule 5(iii)). A copy of this notice and proof of service are attached to Form URC-1 (rule 4(2)).
• A declaration by the LLP that it has filed all documents required under the LLP Act, 2008 with the Registrar (LLP) (rule 5(iv)). The current form carries the same wording, "Rule 5(iv)".
• A statement of any court or other proceedings by or against the LLP that are pending (rule 5(v)).

The newspaper notice

Section 374(b) of the Companies Act, 2013 requires an advertisement in a newspaper, one in English and one in the vernacular language, in the form prescribed, giving notice and seeking objections. Rule 4(1) of the Companies (Authorised to Register) Rules 2014 fixes the details. The notice is in Form URC-2. It seeks objections within twenty-one clear days from the date of publication. It is published in English and in the principal vernacular language of the district in which the LLP is in existence, in newspapers circulated in that district.

Attach a copy of the notice as published to Form URC-1 (rule 4(2)).

What the Registrar does

Under rule 4(3), the Registrar considers the application and any objections received within thirty days from the date of publication of the advertisement. The Registrar must be satisfied that you have addressed the objections suitably before deciding whether registration should be granted. If satisfied, the Registrar issues the certificate of incorporation in Form INC-11 (rule 4(4)).

On registration, the Act does the heavy lifting. All property, movable and immovable, including actionable claims, that belonged to the entity passes to and vests in the company (section 368). The registration does not affect the entity's rights or liabilities for debts or contracts (section 369). A secured creditor who has consented, as section 374(a) requires, is thus still a creditor of the same business.

Closing the LLP side

Three things happen on the LLP side.

First, the LLP is deemed dissolved. The proviso to section 374 of the Companies Act, 2013 says that on registration as a company under this Part, an LLP incorporated under the Limited Liability Partnership Act, 2008 "shall be deemed to have been dissolved under that Act without any further act or deed".

Second, the Registrar (LLP) still needs to be told. Rule 5(i) of the Companies (Authorised to Register) Rules 2014 says that where an LLP has obtained a certificate of registration under section 367, an intimation must be given within fifteen days of the registration to the concerned Registrar (LLP) under which it was originally registered, with the necessary documents or papers for its dissolution. The member's undertaking in Form URC-1 uses the same fifteen-day window.

Third, do not carry on business in the old name. Form URC-1 contains an undertaking that no activity or business shall be carried out in the name and style of the previous or converted entity.

Later changes to the rules

We searched the official texts we hold for amendments to the Companies (Authorised to Register) Rules 2014. We found only changes to Form URC-1's layout: the Companies (Incorporation) Amendment Rules, 2020 omit the words "Form language English Hindi SRN of RUN" from Form URC-1. We found no amendment changing rules 3, 4 or 5 themselves. Rules can still change, so check the current version on the MCA portal.

What not to do

• Do not close or wind up the LLP separately first. The Act deems it dissolved on registration; a separate winding up is a different process.
• Do not skip the secured creditors. Their consent or no objection is a condition (section 374(a)).
• Do not assume tax, GST, licence and bank accounts move across on their own. Each needs its own update. We have not verified the tax treatment from the official texts.

What to do now

Both Registrar (LLP) steps are conditions the rules place on you (rule 5(i) and (iii)), so diarise them with the rest.

Have a CA review your facts before you act or file.

Frequently asked questions

Can any LLP convert into a private limited company?
Section 366(1) lists an LLP among the entities that can apply, and section 366(2) allows registration as a company limited by shares. Proviso (vii) to section 366(2) requires an entity with fewer than seven members to register as a private company.

Do I have to wind up the LLP first?
No. The proviso to section 374 deems the LLP dissolved on registration. You still give the Registrar (LLP) the intimation and papers within fifteen days (rule 5(i)).

Which form do I file?
Form URC-1 for the application, Form URC-2 for the newspaper notice, and you receive the certificate of incorporation in Form INC-11 (rules 3(2), 4(1) and 4(4)).

Who has to consent?
Secured creditors (section 374(a)), a majority of members at a general meeting (proviso (iv) to section 366(2)), and every member or partner for the notarised affidavit (section 374(c)). The form also lists a three-fourths consent attachment, so plan for the stricter standard.

Does the new company keep the LLP's assets and contracts?
Property of the entity vests in the company on registration (section 368) and its debts and contracts continue (section 369).

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See Also

• Both founders live abroad: who is your resident director?
• Startup India (DPIIT) recognition rejected — what to fix and reapply
• Starting a Section 8 company and getting 12A/80G: the steps in order