Demystifying LLP Conversion Presented by CA Ravi Kr

Demystifying LLP Conversion Presented by: CA. Ravi Kr. Patwa B. Com, FCA, DISA(ICAI) RKP ASSOCIATES Chartered Accountants ‘Sarwam’, 1 st Floor Janiganj Bazar Silchar - 788001 Branches at Guwahati, Kolkata, Siliguri, Patna Associate offices at New Delhi, Mumbai, Bangalore, Chennai, Hydrabad, Ahmedabad, Jaipur, Trivandram, Cochin, Pune etc. Member Firm of Batgach & Affiliates, a Network approved by ICAI.

Discussion on LLP Conversion What can be Converted? Advantages over Company Advantages over Firm Demerits Check Points Procedure Tax Issues Some Questions

WHAT CAN BE CONVERTED ? • Partnership Firm • Private Company • Unlisted Public Company

ADVANTAGES OVER COMPANY Lower Cost of Compliance No restriction on withdrawal from Capital No need of maintaining Statutory Registers No Compulsory Meetings No cap on loans and borrowings No condition applicable on acceptance of deposits Cont’d…

ADVANTAGES OVER COMPANY. . . . (CONT’D…) No restriction on related party transactions Audit is not compulsory No restriction on remuneration No restriction on distribution of Profits No dividend Distribution Tax

ADVANTAGES OVER FIRM • Perpetual Succession • Limited Liability of partners • Partners are agents of LLP & not of other partners • Can initiate legal proceedings with own name

SOME DEMERITS • Some Private Companies can not be converted • NBFC activity can not be carried out • Larger LLPs require CS signature in Annual Return • Section 8/25 Company can not be converted

Check Points before Conversion • LLP should comprise of all the shareholders/partners of the Company/Firm as partners & none else • Capital contribution & Profit sharing ratio in the LLP should be in the same proportion as their shareholding in the Company/Profit sharing ratio of Firm • All the Assets & Liabilities of the Company/Firm must become Assets & Liabilities of the LLP • Obtain no objection from creditors • Obtain Clearance from any other Authority/Body Corporate, if needed • Balance Sheet of a cut off date has to be drawn & Audited • If a Body Corporate is a likely partner, appoint a nominee for it

Check Points before Conversion (Only for Companies) • The assets should not have been given as security • Turnover or gross receipts in any of the 3 preceeding years preceeding the year of conversion shall not exceed 60 lakhs • Assets shall not exceed 5 crores in last 3 years • Shareholders of the Company shall not receive anything except the Capital Contribution & right to profits in the LLP • Aggregate profit sharing ratio of such Shareholders shall not fall below 50% in the next 5 financial years • No amount can be paid to any partner out of accumulated profits standing in the accounts of the company as the date of conversion for a period of 3 years

PROCEDURE OF CONVERSION • Obtain DIN of designated partners • Obtain DSC of at least one designated Partner • Call Board meeting, pass resolution for conversion & authorize one director to apply for name of LLP • Apply for name availability in form Form-1 • Obtain name approval • Draft LLP agreement Cont’d…

PROCEDURE OF CONVERSION. . . . ONT’D…) (C • File incorporation documents & subscribers statement in Form 2 • File application & statement for conversion in Form 18 / Form 17 • File Form 3 containing LLP agreement within 30 days • Obtain certificate of registration in Form No. 19 Cont’d…

PROCEDURE OF CONVERSION. . . . ONT’D…) (C • File intimation of conversion in Form 14 within 15 days of Registration • File consent of Designated Partners in Form 4 within 30 days • For a period of 12 months commencing not later than 14 days after the date of conversion, every official correspondence of the LLP should bear Ø a statement that it was converted Company/Firm to LLP from such date from Ø name and registration no. of the Company/Firm

CERTAIN TAX ISSUES • No Capital Gains tax on conversion if conditions are fulfilled • Carry forward of Unabsorbed business losses and depreciation • No MAT • Succeeding LLP will not get benefit of MAT as the concept of MAT is not applicable to LLP • AMT is applicable

SOME QUESTIONS 1. Can the Audits & appointments of earlier Firm be continued? 2. Can Karta of HUF become partner of LLP? 3. Can multiple CA Firms convert into single LLP? 4. Whether Firm must be registered in order to be as LLP? 5. Can the ROC refuse conversion? 6. Whether provisions of Partnership Act, 1932 shall apply to LLP 7. Can a minor become a partner? 8. Can a body Corporate be a DP? 9. Can a non resident become a designated Partner? Cont’d…

SOME QUESTIONS. . . . ONT’D…) (C 10. If there is an immovable property in the Company (to be converted), for effecting transfer, whether stamp duty etc. is required to be paid? 11. Whether Capital Gain Tax will come if Firm has immovable property & converted to LLP? 12. Where a company is converted to LLP, in order to avoid CG, since nothing except share of Profit is to be paid to Partners for 3 years, can interest on Capital and remuneration be paid? 13. If converted LLP creates an FD against which partners take loan from bank, whether 47 A(4) will attract? 14. Whether 2 (22) (e) of IT Act on Deemed Dividend is applicable to LLP? Cont’d…

SOME QUESTIONS. . . . ONT’D…) (C 15. Since the rate of tax for smaller companies is now lower, (25%) than LLP (30%), is LLP actually not tax costly? 16. Whether LLP can take advantage of Presumptive taxation u/s 44 AD? 17. If NBFC is not allowed? How is it better than company for group investment? 18. For Firm to LLP, whether new PAN is required? 19. Can LLP raise Public Deposits? 20. Is having a common seal compulsory? Cont’d…

SOME QUESTIONS. . . . (CONT’D…) 21. Will an admission of a new partner require unanimity? 22. If it’s a 2 partner LLP & one partner dies, does the LLP die too? 23. Can a partner of LLP be forced to retire/expelled? 24. Is there any way where partners can be held personally liable? 25. Will the bankers give some weigtage to LLP as a company?

THANK YOU