5/21/2017 MigrationfromLLPtoCompanystructure

(http://taxguru.in/) CompanyLaw(http://taxguru.in/category/companylaw/) Articles(http://taxguru.in/type/articles/)

MigrationfromLLPtoCompanystructure(http://taxguru.in/companylaw/migrationllpcompanystructure.html)

admin(http://taxguru.in/author/admin/) |CompanyLaw(http://taxguru.in/category/companylaw/)
10May2017(http://taxguru.in/2017/05/10/) 1,557Views
0comment(http://taxguru.in/companylaw/migrationllpcompanystructure.html#pcomments) (http://www.printfriendly.com)
HitenKotak,LeaderM&ATax,PwCIndiaandRekhaBagry,Partner,M&ATax,PwCIndia

ThearticlediscussestheneedforbusinesstobeconductedthroughLLP,theneedtomigratefromLLPtoCompany
structure,variouswaysformigrationfromLLPtoCompanystructureandissuesrevolvingaroundit.

Onechoosesabusinessentityasasoleproprietor,partnershipfirmoraCompanydependingontheneedsofthebusiness.Partnershipfirms
are created by way of partnership deed between the partners. The drawback is that firms do not have a separate legal entity status and the
liabilityofthepartnersisunlimited.WhereasaCompanygetsincorporatedandhasaseparatelegalentitydistinctfromitsshareholders.Ithas
perpetualsuccessionbutthecomplianceproceduresarecumbersome.Toprovideamidwaybetweenthetwo,theGovernmentintroducedthe
Limited Liability Partnership (LLP) concept through the LLP Act, 2008 (http://taxguru.in/corporatelaw/salientfeaturesllpact2008
statewiselisenumberfirmsconvertedllpyears.html)(LLPAct)withtheLLPrulesnotifiedin2009.TheLLPisauniqueformhavingpartners
and legally recognised as a corporate entity. Thus, LLP integrates the features of both Company and partnership firms. Small business and
startupsareoptingforLLPregistrationasitiseasytostartwithminimumcapital,taxbenefitsofnominimumalternatetaxordividenddistribution
tax.

LLPworksouttobeanidealformoforganization,however,aCompanyisstillmoreacceptableasanestablishedformoforganization.Asand
whenthebusinessesexpand,LLPsmayhavetobeconvertedintoaCompanyowingtovariousreasons.Forexample:

ForeignVentureCapitalInvestors(FVCI)cannotinvestinLLPsexceptinstartups.[i]
Foreign Portfolio Investors (http://taxguru.in/sebi/securitiesexchangeboardindiaforeignportfolioinvestorsamendment
regulations2017.html)cannotinvestinLLPs.
ForeignDirectInvestment(FDI)inCompanyisundertheautomaticrouteinmostsectorswhereasFDIinLLPcanbeundertheautomatic
routeonlyiftherearenoperformancelinkedconditionsinthatsector.
ACompanycanavailmorefundsintheformofdebtincomparisontoaLLP.
TaximplicationsincaseofbusinessreorganizationsbetweenLLPsNospecificexemptionisprovidedundertheIncomeTaxAct,1961
(ITA)formerger/demergerofLLPs.
PrivateequityplayersmaynotbeverycomfortableininvestinginLLP.
Restrictions on LLP in availing External Commercial Borrowings. (may be resolved in due course as RBI in March 2017 removed such
restrictions).

Section366oftheCompaniesAct,2013(CosAct)providesaonewaystreetforconversionofLLPintoaCompany.Thissectionprovidesthat
Companyincludesanypartnershipfirm,limitedliabilitypartnership,cooperativesociety,societyoranyotherbusinessentityformedunder
anyotherlawforthetimebeinginforceandsuchentitiesmayapplyforregistrationbyfollowingthespecifiedprocedurelaiddowninCompanies
(AuthorisedtoRegisterRules),2014.Afewoftheconditionsareasfollows

Writtenconsentfromthemajorityofmemberswhetherpresentinpersonorbyproxyatageneralmeeting.
ConsentofSecuredcreditorsforsuchconversion.
MinimumsevenmembersshallberequiredfortheregistrationofaCompany.
AnundertakingthattheproposeddirectorsshallcomplywiththerequirementsoftheIndianStampAct,1899(2of1899),asapplicable.
AfterobtainingavailabilityofnameintermsoftheprovisionsoftheCosAct,shallattachtherequireddocumentsandinformationforthe
RegistraralongwithFormNo.URC.1
EveryCompanyshallpublishanadvertisementaboutitsregistrationunderthesaidPart.

AlthoughitispossibletoconvertaLLPintoaCompany,therearestillcertainareaswhereclaritymayberequiredasfollows:

Aspersection47(xiii)oftheITA,anycapitalgainsarisingontransferofacapitalassetorintangibleassetbyafirm(whichincludesLLP)
to a Company as a result of succession of the firm by a Company is exempt in the hands of the firm provided certain conditions are
satisfied.

http://taxguru.in/companylaw/migrationllpcompanystructure.html 1/4
5/21/2017 MigrationfromLLPtoCompanystructure

ThoughSection47(xiiib)oftheITAprovidescapitalgainsexemption,subjecttocompliancewithcertainconditions,inthehandsof
theshareholdersandtheCompanyonconversionofCompanyintoLLPsimilarprovisionisnotmadeundersection47(xiii)of
theITA.Therefore,whetherpartnersofLLPwillbeeligibletoexemptionornotremainstobeseen.

As per recent RBI Notification No. 385/2017 dated 3 March, 2017 (http://taxguru.in/rbi/foreignexchangemanagementtransferissue
securitypersonresidentindiaamendmentregulations20172.html), it is clarified that a Company having foreign investment can be
convertedintoanLLPundertheautomaticrouteonlyifitisengagedinasectorwhereforeigninvestmentupto100percentispermitted
underautomaticrouteandtherearenoFDIlinkedperformanceconditions.HoweverthereisnoclaritywhetherconversionofLLPintoa
Companyisunderapprovalrouteorautomaticroute?
ApplicabilityofstampdutyonconversionofLLPintoaCompany?

Recently,thegovernmenthastakenvariousstepswithrespecttoeaseofdoingbusinessinIndiahoweveritwouldbeawelcomestepifthe
governmentclarifiestheissuesdiscussedabove.

SomeotheralternativesformigrationfromanexistingLLPstructuretoaCompanystructureareasfollows

SaleofbusinessfromLLPtoaCompany.
MergerofLLPintoaCompany.

Giventheconstantchangesinthetaxandregulatorylaws,onemayneedtoexaminetheimplicationsarisingfromsuchmigrations.

[i] [i]As per RBI/201617/89 A.P. (DIR Series) Circular No. 7 dated 20 October, 2016 (http://taxguru.in/rbi/investmentforeignventurecapital
investorsebiregulations.html),FVCIscaninvestinequityorequitylinkedinstrumentordebtinstrumentissuedbyanIndianstartupirrespective
ofthesectorinwhichthestartupisengaged.Astartupwillmeananentity(privatelimitedcompanyoraregisteredpartnershipfirmoralimited
liability partnership) incorporated or registered in India not prior to five years, with an annual turnover not exceeding INR 25 crores in any
precedingfinancialyear.

Viewsexpressedarepersonaltoauthor.ArticleincludesinputsfromManjitBhimajiani,AssociateDirector,PwCIndiaandPradeepSethiaandNihalRajendran

MoreUnderCompanyLaw(http://taxguru.in/category/companylaw/)
CSRisgettingmainstreamedthroughCompaniesAct2013(http://taxguru.in/companylaw/csrmainstreamedcompaniesact2013.html)

Reg.AdmissionbyRegionalDirectorofTimebarredapplication(http://taxguru.in/companylaw/regadmissionbyregionaldirectoroftimebarred
application.html)

ComplywithnormsrelatedtotransferofproceedingsfromHCstoNCLTbefore14.06.2017(http://taxguru.in/companylaw/complywithnormsrelated
transferproceedingshcsncltbefore14062017.html)

MCAwithdrawsCircularonTransferofsharestoIEPFAuthority(http://taxguru.in/companylaw/mcawithdrawscirculartransfersharesiepfauthority.html)

AllaboutUnregisteredCompanies(http://taxguru.in/companylaw/unregisteredcompanies.html)

PostedUnder
Category:CompanyLaw(http://taxguru.in/category/companylaw/)(3254)

Type:Articles(http://taxguru.in/type/articles/)(12848)

Tags:CompaniesAct(http://taxguru.in/tag/companiesact/)(1729)CompaniesAct2013(http://taxguru.in/tag/newcompaniesbill/)(1505)fema
(http://taxguru.in/tag/fema2/)(521)LLP(http://taxguru.in/tag/llp/)(177)mergersandacquisitions(http://taxguru.in/tag/mergersandacquisitions/)(32)

31 3 4 0 24 0
7
Like Google+

PreviousArticle(http://taxguru.in/goodsandservicetax/gsttransactionanalysiswithpracticalexamples.html)

NextArticle(http://taxguru.in/incometax/timelimitforissueofpenaltyproceedingonissuesunrelatedtoincomeassessment.html)

LeaveaReply
Youremailaddresswillnotbepublished.Requiredfieldsaremarked*

http://taxguru.in/companylaw/migrationllpcompanystructure.html 2/4
5/21/2017 MigrationfromLLPtoCompanystructure

Comment

Name*

Email*

Website

PostComment

LatestPosts

1.Section50Capplicableonsalevalueofdepreciableasset(http://taxguru.in/incometax/section50capplicableonsalevalueofdepreciableasset.html)
2.ImpactofGSTonFMCG(http://taxguru.in/goodsandservicetax/impactgstfmcg.html)
3.Bogussharecapital:AOmustscrutinisedocumentsproducedbyassessee,additioncannotbedonemerelyonreportofinvestigationwing
(http://taxguru.in/incometax/bogussharecapitalaomustscrutinisedocumentsproducedbyassesseeadditioncannotbedonemerelyonreportof
investigationwing.html)
4.NoTDSOnSalariesReimbursedUnderSecondmentAgreement(http://taxguru.in/incometax/notdsonsalariesreimbursedundersecondmentagreement.html)
5.GSTRateCardforServices(http://taxguru.in/goodsandservicetax/gstratecardservices.html)
6.EVMHackChallengebyElectionCommissionofIndia(http://taxguru.in/corporatelaw/evmhackchallengeelectioncommissionindia.html)
7.AllaboutReverseChargeMechanismunderGST(http://taxguru.in/goodsandservicetax/reversechargemechanismgst.html)
8.Comments/SuggestionsInvitedforExistingVirtualCurrenciesFramework(http://taxguru.in/corporatelaw/commentssuggestionsinvitedexistingvirtual
currenciesframework.html)
9.HavenewNPAnormsforWholesaleLongTermFinanceBank:ASSOCHAMtoRBI(http://taxguru.in/rbi/npanormswholesalelongtermfinancebankassocham
rbi.html)
10.ReverseChargeMechanism(RCM)forServices:WhatHasChanged??(http://taxguru.in/goodsandservicetax/reversechargemechanismrcmservices
changed.html)

ViewAllLatestPosts(http://taxguru.in/page/2/)

FeaturedPosts

1.GSTTransitionInputTaxCreditofExciseDutytoVATDealers(http://taxguru.in/goodsandservicetax/gsttransitioninputtaxcreditexcisedutyvatdealers.html)
2.BankscannotRefusetoacceptscribbled/coloured/fadedbanknotes(http://taxguru.in/rbi/bankscannotrefusetoacceptscribbledcolouredfadedbank
notes.html)
3.IncomeTaxCompliance/InformationatAGlance(http://taxguru.in/incometax/incometaxcomplianceinformationglance.html)
4.5MajorprovisionsofRealEstateActeffectivefrom1stMay2017(http://taxguru.in/corporatelaw/5majorprovisionsofrealestateacteffectivefrom1stmay
2017.html)
5.DownloadGSTFinancialImpactCalculator(http://taxguru.in/goodsandservicetax/downloadgstfinancialimpactcalculator.html)
6.AMTProvisionsunderIncomeTaxAct1961(AY201718)(http://taxguru.in/incometax/amtprovisionsincometaxact1961ay201718.html)
7.CashTransactionsforwhichdetailsneedstosubmittedby30.04.2017(http://taxguru.in/incometax/cashtransactionsforwhichdetailsneedstosubmittedonline
by30042017.html)
8.CICDisposes1,282RTIAppealsbyasingleOrder(http://taxguru.in/corporatelaw/cicdisposes1282rtiappealsbyasingleorder.html)
9.Insuranceplanstohelpyouwithwealthaccumulation(http://taxguru.in/finance/insuranceplanswealthaccumulation.html)
10.GoodsandServicesTaxWhatyoumustknow(http://taxguru.in/goodsandservicetax/goodsandservicestaxwhatyoumustknow.html)

ViewAllFeaturedPosts(http://taxguru.in/type/featured/)

PopularPosts

1.SubmitStatementofFinancialTransactions(SFT)inForm61Aby31.05.2017(http://taxguru.in/incometax/submissionstatementfinancialtransactionssftform
61a.html)
2.EmpanelmentwithVijayaBankofCAfirmsforconcurrentaudit(http://taxguru.in/charteredaccountant/onlineempanelmentwithvijyabankofcafirmsfor
concurrentaudit.html)

http://taxguru.in/companylaw/migrationllpcompanystructure.html 3/4
5/21/2017 MigrationfromLLPtoCompanystructure
3.GSTRateScheduleforGoodsasfinalisedon18.05.2017(http://taxguru.in/goodsandservicetax/gstrateschedulegoodsfinalised18052017.html)
4.GSTRateChartonServices&ListofServicesExemptfromGST(http://taxguru.in/goodsandservicetax/gstratechartserviceslistservicesexemptgst.html)
5.Beware!!DangerofpurchasingfromunregisteredpersoninGST(http://taxguru.in/goodsandservicetax/bewaredangerpurchasingunregisteredperson
gst.html)
6.MSMEinvitestoJoinCertificationCourseonGST(http://taxguru.in/goodsandservicetax/msmeinvitesjoincertificationcoursegst.html)
7.ChartofServicesUnderReverseChargeasapprovedbyGSTCouncil(http://taxguru.in/goodsandservicetax/chartservicesreversechargeapprovedgst
council.html)
8.MandatoryfilingofStatementofFinancialTransactions(SFT)onorbefore31stMay,2017(http://taxguru.in/incometax/mandatoryfilingstatementfinancial
transactionssft31st2017.html)
9.HowtoPreventandMitigateRansomwareAttacks(http://taxguru.in/corporatelaw/preventmitigateransomwareattacks.html)
10.StatementofFinancialtransactionsForm61Afiling&SubmittingSFTPreliminaryResponse(http://taxguru.in/incometax/statementfinancialtransactionsform
61afilingsubmittingsftpreliminaryresponse.html)

ViewAllPopularPosts(http://taxguru.in/popularposts/)

NEWSLETTER

Joinournewsletter.Wearegoingtoprovideyouactualinformationwithoutspamorfluff.

Enteryouremailaddress

SubscribeNow

SearchPostsbyDate
MAY2017

M T W T F

1 2 3 4 5

(http://taxguru.in/2017/05/01/) (http://taxguru.in/2017/05/02/) (http://taxguru.in/2017/05/03/) (http://taxguru.in/2017/05/04/) (http://taxguru.in/2017/05/05/) (http://taxguru.in/2

8 9 10 11 12

(http://taxguru.in/2017/05/08/) (http://taxguru.in/2017/05/09/) (http://taxguru.in/2017/05/10/) (http://taxguru.in/2017/05/11/) (http://taxguru.in/2017/05/12/) (http://taxguru.in/2

15 16 17 18 19

(http://taxguru.in/2017/05/15/) (http://taxguru.in/2017/05/16/) (http://taxguru.in/2017/05/17/) (http://taxguru.in/2017/05/18/) (http://taxguru.in/2017/05/19/) (http://taxguru.in/2

22 23 24 25 26

29 30 31

Apr(http://taxguru.in/2017/04/)

QUICKLINKS

Home(http://taxguru.in/)
AboutUs(http://taxguru.in/about)
Advertise(http://taxguru.in/advertisewithus)
JobsatTaxguru(http://taxguru.in/tag/vacancy/)
PrivacyPolicy(http://taxguru.in/privacypolicy)
Terms&Disclaimer(http://taxguru.in/finance/disclaimerforwwwtaxguruin.html)

IMPORTANT

SubmitArticle(http://taxguru.in/charteredaccountant/invitationtojointaxguruinpanelofesteemedauthors.html)
Calculators(http://taxguru.in/tag/calculator/)

http://taxguru.in/companylaw/migrationllpcompanystructure.html 4/4