Converting a Private Limited Company into an LLP or a Public Company: Process and Conditions

A company's structure isn't fixed. A small private company may decide an LLP's lighter compliance suits it better, and a growing one may need to become a public company before listing. Each of these is a conversion under the law, with its own conditions and approvals. This guide explains both, and the reverse move from public to private.

Converting a Private Limited Company into an LLP

The LLP Act, 2008 allows a private company to convert into an LLP under Section 56 and the Third Schedule. An unlisted public company can convert under Section 57 and the Fourth Schedule on similar terms.

Why companies do it

• An LLP has no mandatory audit below the thresholds, no AGM, and fewer annual filings.
• Profits distributed to partners aren't subject to the dividend-related tax treatment that applies to shareholders.
• It suits businesses that don't need outside equity investment.

Conditions

• All the company's shareholders become partners of the LLP, and no one else.
• There are no outstanding security interests on the company's assets, or the secured creditors consent.
• The company's filings with the ROC are up to date.

The process

1. Reserve the LLP's name through RUN-LLP.
2. Get the shareholders' approval and the consent of any secured creditors.
3. Prepare a statement of the company's assets and liabilities, certified by a Chartered Accountant.
4. File the LLP's incorporation form together with Form 18, the application to convert.
5. On registration, the company's assets, liabilities and contracts vest in the LLP, and the company is dissolved.
6. Within 15 days, the LLP informs the ROC where the company was registered, and files its LLP agreement within 30 days.

Tax

The conversion is exempt from capital gains tax only if strict conditions are met, including limits on the company's turnover and total assets in the preceding years, shareholders becoming partners in the same proportion, and restrictions on withdrawing accumulated profits for a period after conversion. Companies that don't meet them may face tax on the conversion, so check eligibility first.

Converting a Private Company into a Public Company

A private company becomes public by removing the restrictions that make it private. It's usually done ahead of a listing, or when the company needs more than 200 members.

1. Increase the number of directors to at least three, and members to at least seven, if needed.
2. Shareholders pass a special resolution altering the articles to remove the private company restrictions on share transfers and membership, and changing the name from "Private Limited" to "Limited."
3. File MGT-14 and INC-27 with the ROC, with the altered MoA and AoA.
4. The ROC issues a fresh certificate of incorporation.

The company remains the same legal entity, with the same PAN, but becomes subject to the stricter rules that apply to public companies, such as on related party transactions, managerial remuneration and board composition.

Converting a Public Company into a Private Company

The reverse move is more tightly controlled, because it reduces the protections for members and creditors.

1. Shareholders pass a special resolution altering the articles to add the private company restrictions and change the name.
2. The company applies to the Regional Director for approval in Form INC-27, after giving notice to creditors and others who may be affected.
3. Once the Regional Director approves, the order is filed with the ROC, which issues a fresh certificate.

The company must have no more than 200 members, and a listed company must delist first.

Getting Help

Think Filing handles company to LLP conversions, and private to public and public to private conversions, including checking eligibility and tax conditions, preparing the resolutions and filings, and updating registrations afterwards.