Converting an LLP into a private limited company

Law

Section 366, Companies Act 2013

Form

URC-1, with URC-2 notice

Consent

Majority of partners in writing

Minimum

2 partners, who become members

Why an LLP becomes a company

An LLP is a good vehicle for professional firms and owner-managed businesses, but it has limits that a growing business runs into:

• Equity funding: angel and venture investors invest in shares, and an LLP has no share capital.
• ESOPs: employee stock options can only be granted in a company.
• Foreign investment: an LLP can receive FDI only in sectors where 100% FDI is permitted under the automatic route without conditions; a company has wider options.
• Startup benefits and tenders: some schemes and buyers prefer or require a company.

Conversion keeps the same business running, which is usually better than forming a new company and transferring assets to it. If the LLP is small and none of these apply, staying an LLP may be cheaper: LLPs need an audit only above prescribed turnover or contribution limits, while every company is audited.

The legal basis: Section 366

Section 366 lets a partnership firm, LLP, cooperative society, society or other business entity register as a company. The Companies (Amendment) Act, 2017 reduced the minimum from seven members to two or more members, so an LLP with two partners can convert into a private company. The application must be made with the consent of a majority of the members expressed in writing, and the entity must comply with Part I of Chapter XXI and the Companies (Authorised to Register) Rules, 2014. In practice we obtain the written consent of all partners, because each will become a shareholder and sign the subscriber documents.

Sections 368 to 371 deal with the effect of registration: the property of the LLP vests in the company, existing liabilities continue, pending legal proceedings continue by or against the company, and the LLP agreement is replaced by the MOA and AOA.

Step-by-step procedure

1. Bring LLP filings up to date. Pending Form 8 and Form 11 returns, changes in partners and changes in office must be filed first, or the application will be stuck.
2. Partner resolution and consent. The partners resolve to convert, approve the name, the MOA and AOA and the first directors, and sign written consents.
3. Name approval. The company usually keeps the LLP's name with "Private Limited" in place of "LLP", subject to availability.
4. Newspaper notice. A notice in Form URC-2 is published in an English newspaper and a vernacular newspaper circulating in the district of the registered office, and on the websites the rules specify, inviting objections.
5. File URC-1. URC-1 is filed with the list of partners and their contributions, the LLP agreement, a recent statement of assets and liabilities certified by a chartered accountant, creditor consents, the newspaper notice and the other attachments the rules require, together with the incorporation forms and MOA and AOA, as the MCA portal currently requires.
6. Certificate of incorporation. The Registrar registers the company and issues the certificate. The LLP's record is then closed on the LLP register.

How partners' capital becomes share capital

The partners' contribution and capital accounts on the conversion date are converted into equity shares, normally in the same proportion as their capital or profit share. The authorised capital of the new company must be large enough to cover this. Where partners' accounts are uneven, they are often settled before conversion, by drawing or introducing funds, so that the shareholding reflects what was agreed. Any partner who does not want to continue should exit from the LLP before the application, not after.

Tax and stamp duty

The income tax law gave a specific tax-neutral route for converting a company into an LLP, but not for the reverse. Whether converting an LLP into a company creates a taxable transfer of assets, and how carried-forward losses, depreciation and the cost of assets are treated, should be examined with your chartered accountant under the Income-tax Act, 2025 before filing. Stamp duty on the vesting of property, particularly immovable property, depends on the state stamp law. Because the company receives a new PAN, it also needs a new GST registration; unused input tax credit can be transferred from the LLP's registration in Form ITC-02 on the change in constitution.

After the conversion

• Apply for a new PAN and TAN in the company's name, as a company is a different class of taxpayer from an LLP, and update GST, bank accounts and licences.
• Hold the first board meeting, appoint the auditor and issue share certificates.
• Inform customers, suppliers and lenders, and update contracts that name the LLP.
• Set up the company compliance calendar for ROC annual filings.

Conversion or a fresh company with a business transfer

There are two ways to move an LLP's business into a company. The Section 366 route registers the same entity as a company, so the business, assets and contracts carry over by law and nothing needs to be re-signed in principle. The alternative is to incorporate a new private limited company and transfer the business to it under a business transfer agreement, leaving the LLP to be wound up or struck off. The second route gives more flexibility to change the ownership at the same time and avoids the URC process, but every asset, contract, licence and registration has to be moved individually, and each transfer may carry stamp duty and tax. For most operating LLPs with ongoing contracts, the Section 366 route is cleaner. Where the LLP has old liabilities or disputes that the founders do not want in the new company, a fresh company may be safer. We advise on this before any filing.

Common mistakes

• Applying while LLP returns are pending, which stops the application.
• Not obtaining consent from secured creditors, who can object.
• Ignoring stamp duty on property that vests in the company.
• Cancelling the LLP's GST registration before the input tax credit has been moved to the company.

If you are still choosing a structure for a new business, compare LLP registration with a company before you start.

Documents you need

From the LLP and its partners:

• Certificate of incorporation and LLP agreement with amendments
• Latest Form 8 and Form 11 filings and audited accounts
• Statement of assets and liabilities certified by a chartered accountant
• Written consent of the partners and their resolution
• No-objection from secured creditors
• PAN, Aadhaar and address proof of partners and proposed directors
• DSC of the partners and proposed directors
• Proof of registered office and owner's no-objection

How we handle it for you

1. Health check

   We review the LLP's filings, partners' accounts and tax position.

2. Resolution and documents

   Partner consents, MOA, AOA and the capital conversion are drafted.

3. Notice

   The URC-2 notice is published and any objections handled.

4. Filing

   URC-1 and the incorporation forms are filed and Registrar queries answered.

5. Post-conversion

   PAN, GST, bank, contracts and the compliance calendar are updated.

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