Entrepreneurship in India is thriving, and many companies are looking to change their structure to stay competitive and grow. The process of converting a company from one form to another can be complicated, but with the right support, it can be done quickly and efficiently. Enter the expert, efficient, and highly experienced lawyers of international fame who can help any company in India convert into the desired form. From sole proprietorships to private limited companies, public companies to LLPs, any type of company can be converted with the right legal support. In this blog post, we will explore the process of company conversion in India and the benefits of each type of company structure.
Explanation of company conversion in India
Company conversion is a process that enables companies in India to change their form and structure as per their evolving needs. With the introduction of the LLP Act in 2008, entities have become aware of the benefits of limited liability, separate legal entities, and the ease of ownership transfer. The popularity of LLP has considerably increased among small and medium-sized businesses. The conversion process for a Partnership Firm to LLP entails registering the firm under the Indian Partnership Act of 1932. On the other hand, converting from Proprietorship to Private Limited Company is a popular move that provides minimal compliance requirements and documentation. The conversion process involves drafting an agreement to sell the business, which should be taken over as one of the objectives in its Memorandum of Association. One Person Company and Private Limited Company conversions follow specific conditions and a step-by-step procedure. Public Limited to Private Limited Company conversions are more flexible and offer the option of an Initial Public Offering (IPO). By converting their company type, Indian businesses can take advantage of the benefits and opportunities presented by different business structures.
Importance of converting company types
Converting company types holds immense importance for businesses in India. It offers a range of benefits that can positively impact the growth and success of a business. It allows companies to change their legal structure, ownership, and compliance requirements to meet their evolving needs. Converting from a Private Limited Company to an OPC or an LLP can provide businesses with limited liability protection, access to funding, simplified annual returns filing, and streamlined decision-making. It also reduces the compliance burden and offers tax advantages to companies. Additionally, converting to an OPC allows entrepreneurs to run their businesses as a separate legal entity even as a sole proprietor. However, it is important to carefully consider the advantages and disadvantages of converting and meet the mandatory requirements to ensure a smooth conversion process. Therefore, it is essential for businesses to understand the importance of company conversion and explore relevant options to optimize their operations and achieve their growth objectives.
II. Converting OPC into Private Limited Company
Voluntary and mandatory conversion
Conversion of a company can either be mandatory or voluntary. Conversion of one person company (OPC) into a private or public limited company is mandatory if the paid-up share capital is more than Rs. Fifty lakhs or the average turnover for the immediately previous three consecutive financial years is more than Rs. 2 crores. The conversion process must adhere to the minimum requirements stated in Rule 6(2) of the Companies (Incorporation) Rules 2014. On the other hand, voluntary conversion is possible if the OPC’s paid-up share capital exceeds Rs. Fifty lakhs or the average turnover exceeds Rs. 2 crores. However, this can be done only two years after the incorporation of the OPC. The voluntary conversion process involves submitting Form INC-5 to the concerned Registrar of Companies (ROC) within 60 days. A NOC in written form from the creditors must be obtained for the conversion of OPC to a private limited company. A special resolution must be passed after increasing the minimum number of members and directors to two. Overall, understanding both voluntary and mandatory conversion processes is crucial for companies and their shareholders to navigate the legal procedures smoothly and ensure compliance with relevant laws.
Conditions for converting
There are certain conditions that must be met before a company can be converted in India. One of the most important conditions is having the minimum required number of shareholders and directors in the new type of company. For example, to convert from a Private Limited Company to an OPC, the company must have only one shareholder and one director. On the other hand, for a company to convert to an LLP, it must have a minimum of two partners. Another condition is that the company must have a registered office in India. Additionally, all the necessary documents, such as the Memorandum of Association (MoA) and Articles of Association (AoA), must be updated to reflect the new type of company. The old company’s registration will be closed and a new certificate of incorporation will be issued once all the necessary paperwork is completed and filed with the Registrar of Companies (ROC). It is important to comply with all the legal regulations and requirements during the conversion process to ensure a smooth and successful transition.
III. Converting Private Limited Company into One Person Company (OPC)
How to change from Private Limited to OPC
If you’re looking to change your company type from Private Limited to One Person Company (OPC), the process can seem daunting at first. But it’s actually a relatively simple procedure. Here’s a step-by-step guide to help you through it:
1. Start by organizing an Extraordinary General Meeting (EGM) to get the approval of your shareholders. As per the Companies Act 2013, you’ll need to pass a special resolution indicating your intent to convert from Private Limited to OPC.
2. Once the special resolution is passed, you’ll need to obtain a No Objection Certificate (NOC) from your existing creditors and shareholders. This is a written document stating that they have no objection to your decision to convert.
3. Next, file e-forms MGT-14 and INC-6 with the Registrar of Companies (ROC) within 30 days. These forms, along with some required documents, will be used to verify your eligibility to convert from Private Limited to OPC. If everything is in order, the ROC will issue you a certificate of conversion.
With these three basic steps, you can change your company type from Private Limited to OPC and take advantage of the benefits that come with it.
Requirements for the conversion
To convert a private limited company in India, there are certain requirements that need to be fulfilled. Firstly, the company must have a minimum of two shareholders, with at least one resident of India. The shareholders must be natural persons, not companies or other legal entities. Additionally, the company must have a minimum paid-up capital of ₹100,000 and a registered office in India. The company must also appoint a minimum of two directors who must be natural persons and residents of India. Foreign nationals can also be appointed as directors provided they have approval from the Reserve Bank of India. The company must file various documents with the Registrar of Companies, including the Memorandum of Association and Articles of Association. Once the incorporation process is complete and the requirements have been met, the company will receive a certificate of incorporation from the ROC. Converting a private limited company can be a beneficial move for business owners looking to limit their liability and increase credibility with customers and suppliers.
IV. Converting Private Ltd. Company into LLP
Advantages of LLP over Private Limited Company
When it comes to choosing the right business structure in India, Limited Liability Partnership (LLP) and Private Limited Company are the popular choices. However, there are several advantages of LLP over Private Limited Company that make it an attractive option for entrepreneurs.
One of the primary advantages of LLP is that it offers limited liability to the partners. This means that the personal assets of partners are protected even if the firm faces losses or debts. LLP is also ideal for business expansion, as there is no limit on the number of partners. Additionally, mandatory audits of LLP boost the confidence of stakeholders and improve the credibility of the company, making it easier to get licenses and financing.
Unlike a Private Limited Company, a Limited Liability Partnership is easier to start and manage, and the process has fewer formalities. The cost of registration for LLP is also comparatively lesser than that of a Private Limited Company. Overall, if you’re an entrepreneur looking for a business structure with lower risk exposure, flexible management, and credible governance, then LLP is the way to go.
Steps involved in converting to LLP
Con a Private Limited Company into an LLP is not a complex process but it requires careful consideration of legal requirements and procedural steps. Here are the steps involved in converting to LLP:
1. Conduct a Due Diligence: Conduct legal and financial due diligence to determine if the conversion is the best option for your business.
2. Obtain DIN and DSC: Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the designated partners.
3. Obtain NOC: Obtain No Objection Certificate (NOC) from all the creditors, shareholders and other relevant authorities.
4. File Form-1: File Form-1 for reservation of name for the proposed LLP.
5. Execute the Agreement: Execute the LLP Agreement in accordance with the LLP Act and file Form-3 within 30 days of agreement execution.
6. File Form-2 and Form-14: File Form-2 for incorporation of LLP and Form-14 for intimation of conversion of the company into LLP.
7. Transfer Assets and Liabilities: Transfer all assets and liabilities of the company to the newly incorporated LLP.
8. Obtain Certificate of Registration: Obtain the Certificate of Registration from the Registrar of Companies.
9. Notify Authorities: Notify all relevant authorities such as GST, FSSAI, etc. about the conversion.
10. Start Operations: Once all formalities are completed, start business operations as an LLP.
Converting from a Private Limited Company to an LLP can be beneficial in terms of flexibility, tax compliance, and legal liability. Follow these steps to execute the conversion smoothly.
V. Converting a Business into an LLP
Procedure for converting a business into LLP
Converting a business from one type to another can be quite a challenge in India. Specifically, converting from a Private Limited Company to a Limited Liability Partnership (LLP) can be a hectic process. While the process is not very complicated, it requires investors and entrepreneurs to follow certain steps and regulations. Here is a step-by-step guide to help you convert your business into an LLP:
1. Before beginning the conversion process, ensure that all the members of the Private Limited Company have given their consent for the conversion.
2. The latest copy of Income tax return must be filed with the Registrar of Companies (RoC).
3. Obtain consent from all the creditors (if any) of the Private Limited Company for the conversion of the business into an LLP.
4. Ensure that no prosecution has been initiated under the Companies Act and that no open charges are pending against the Private Limited Company.
5. File form MGT-14 within 30 days of passing the resolution in the general meeting.
6. Obtain a name approval certificate from RoC.
7. File incorporation documents with RoC, including the LLP agreement with stamp duty.
8. Obtain a certificate of registration on conversion.
9. Draft the LLP agreement and file it with RoC within 30 days of obtaining the certificate of registration.
While the process may seem daunting, there are a number of benefits associated with converting your business into an LLP. These include reduced compliance requirements and greater flexibility in terms of ownership and governance structure. So, with careful planning and due diligence, converting your business into an LLP can be a worthwhile endeavor.
Benefits of being an LLP
One of the main advantages of being an LLP (Limited Liability Partnership) is reduced risk exposure. As the name suggests, LLPs borrow from both the company and partnership models of business, creating the distinguishing attribute of limited liability. This means that partners cannot be held personally accountable for the firm’s debts, protecting their personal assets from being auctioned to repay the firm’s debts. Additionally, an LLP is ideal for business expansion, as there is no upper limit on the number of partners. Unlike a conventional partnership model, which is limited to a certain number of participants, an LLP can have an infinite number of partners, making it a viable alternative when the firm seeks to grow or needs expertise in different sectors. Furthermore, LLPs require better audit procedures and governance, making it easier for the entity to apply for licenses and financing, which increases investor confidence and improves the company’s creditworthiness. With these benefits and more, it is not surprising that LLPs are a popular form of business structure in India, especially for small and medium-sized businesses.
VI. Converting a Proprietorship Firm into a Private Limited Company
Benefits of converting to a Private Limited Company
Converting to a Private Limited Company (PLC) can offer numerous benefits to entrepreneurs in India. Firstly, a PLC provides limited liability protection, which means that shareholders’ personal assets are not at risk in case of business debts or legal liabilities. Secondly, PLCs have increased control and governance mechanisms, making it easier to meet regulatory provisions, exercise greater control and restrict share transfers, without requiring special resolutions. Thirdly, they have access to funding and can raise capital by issuing shares to private investors. In comparison to the One-Person Company (OPC), PLCs are taxed at higher rates. Additionally, PLCs can accommodate up to 200 shareholders, while OPCs are limited to one shareholder. PLCs are suitable for established businesses with a larger number of employees and a market-ready product or service. The conversion process from a public limited company to a private limited company requires a special resolution, obtaining a no-objection certificate from existing members and creditors, and the filing of all returns and documents with the Registrar of Companies.
The process of converting
Converting a company type is a critical step for any business looking to expand or improve its operations. The process of converting a company in India involves several essential steps and factors that must be considered. One way to convert a private limited company to One Person Company (OPC) is by following a specific set of conditions. These include having only one member who is a citizen of India, filing certain e-forms with the Registrar of Companies, and obtaining a No Objection Certificate from creditors. On the other hand, converting a private limited company to a public limited company requires meticulous preparation and execution. In this case, the business needs to obtain permission from the Registrar of Companies and SEBI, have a minimum capital of seven shareholders and three directors, and provide audited financial statements for the past three years. Regardless of the type of conversion, it is important to remember key factors such as meeting legal requirements, practicing good governance, and planning for future growth and expansion strategies.
VII. Conversion of Private Company to a Limited Company
Legal regulations and requirements
When converting a company in India, it is important to understand the legal regulations and requirements that apply. The Companies Act of 2013 outlines the process of changing from one type of company to another. Section 18 of the act allows for any registered company to convert into a different type by amending the Memorandum of Association and Articles of Association, and submitting an application to the Registrar of Companies. There are different requirements for each type of company conversion, such as a minimum number of shareholders and directors, and a minimum paid-up capital. It is also crucial to comply with certain regulations and governance rules, which can be time-consuming and costly. Along with the benefits of conversion, such as limited liability and ease of raising capital, there are potential drawbacks, such as double taxation for private limited companies. Therefore, it is wise to seek expert assistance and follow a step-by-step guide to ensure a smooth conversion process.
Step-by-step guide for the conversion
Converting a company type in India can be a complex process, but it can also provide numerous benefits for businesses looking to expand or restructure. The first step is to ensure compliance with the Provisions prescribed under the Indian Companies Act of 2013. Here’s a step-by-step guide on how to convert your company from one type to another:
1. Ensure that your company meets the necessary requirements for conversion, including change to the Memorandum of Association and Articles of Association and submission of an application to the Registrar of Companies.
2. Next, conduct a General Meeting of Partners to obtain the consent of the majority of partners for the proposed conversion of the LLP into a Private Limited Company. The secured creditors of the LLP must also accord consent for conversion.
3. Apply for Director Identification Number (DIN) if the proposed directors of the company do not already hold one.
4. File an application with the Ministry of Corporate Affairs seeking name approval for the proposed company using e-form RUN.
5. File e-form URC – 1 for Application by a company for registration under Section 366.
6. Submit required documents for registration, including lists of partners and shareholders, statement of accounts, and consent or no objection certificates from secured creditors.
7. After all necessary paperwork has been filed and the Registrar is satisfied with the registration provisions, a new certificate of incorporation will be issued to the business reflecting its new legal structure.
By carefully following these procedures, businesses can successfully convert their company types and reap the benefits of a new legal structure.
Summary of the benefits and advantages of converting company types
In summary, converting company types in India can offer a range of benefits and advantages for businesses of all sizes. Whether you are considering converting from a Private Limited Company to an OPC or from a sole proprietorship to an LLP, the process can be complex, but the rewards can ultimately be worth it. Some of the key benefits of converting include:
● Improved access to funding and capital
● Limited liability protection for business owners
● Easier compliance with legal and regulatory requirements
● The ability to streamline decision-making and management structures
● Increased credibility and market exposure
However, it is important to carefully consider the pros and cons of each conversion option and ensure that it aligns with your long-term business goals. For example, while an OPC may be a good choice for a solo entrepreneur, an LLP may be a better choice for a partnership. By understanding the conversion process and the advantages and disadvantages of each type of company, you can make an informed decision that best suits the needs of your business.