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Conversion of Private Limited Company to LLP

23 Jul,2018

Limited Liability Partnership Act- 2008 gave a new and easy way to run a business with less of compliance which also reduces compliance cost and provides tax benefits etc. LLP helped small business/ new entrepreneurs to run their business in easy and cost effective way. Let’s have an overview of comparison between Private Limited Company and LLP.

LLP is governed by Limited Liability Partnership Act- 2008 which came in to force on 1st day of April 2008. This Act was introduced with the idea of promoting MSME Sector (Micro Small Medium Enterprise) with the advantage of self-governance and less compliance.

LLP is an alternate corporate body, comprising the benefit of both Company and Partnership.

  • It contains the benefit of Limited liability to partner and Flexibility of Partnership.
  • LLP is a corporate body and granted the legal status same as that of company.
  • Unlike the partnership in LLP the liability of the partner is limited up to the contribution made by them.

A registered limited company in India (Private or Public) has a lot of complex formalities and incurs additional overheads for managing affairs including mandatory board meeting, maintenance of statutory records, filling of e-forms with MCA etc. Absence of such mandates for LLP combined with advantages such as non-applicability of dividend distribution tax on profit repatriation, transfer of profit rules and deemed dividend profit issues, MAT provisions.

In India, formation, registration, and regulation of an LLP is exclusively governed and controlled by the rules, provisions, and regulations provided in the LLP Act of 2008 and the LLP Rules of 2009. The Ministry of Corporate Affairs (MCA), Government of India, and its well-equipped web portal [www.llp.gov.in] is directly concerned for establishing an LLP.

The comparative chart of compliances to be made by a company and LLP is given below:

Particulars

LLP

Private Company

Maintenance of Statutory Records

No statutory registers are required to be maintain by LLP

As per Companies Act,2013 many statutory registers are required to be maintained eg. Register of Members etc.

Convening of Meetings

No such requirement

Require to hold Meetings as per Section- 173. (At least Two Board Meeting and one Annual General Meeting for Small Company and At least four Board Meeting and One Annual General Meeting for other than Small company).

Addition & deletion of Directors

Require to amend LLP Agreement and File E-form- 3 & E-form-4.

Require to Pass Resolution in General Meeting, File e-form-DIR-12 and require many documents from the person who is appointed as Director. (As per Section-152 of Companies Act, 2013.)

Increase in Capital

Only require to amend LLP Agreement and File e-form Form-3.

Require to Pass Ordinary resolution in General Meeting and file form SH-7.

Annually form filling requirement

Only Two annual E-form- 8,

E-form-11

There are much formsE-form-AOC-4

E-form- MGT-7, E-form- MGT-14

E-form-ADT-1

Loans & borrowings

As per LLP Agreement

There is Cap for Loans and Borrowings as per section 179 & 180, Require to hold Board Meeting and file form with ROC.

Related Party Transactions

No restrictions

Transaction to be at arm’s length price only and as per provisions of Secton-188 of Companies Act-2013.

Audit of Accounts

Require only if turnover above 40 lacs or Contribution more than 25 lacs.

Audit is Compulsory.

 

Benefits of LLP as compared to Corporates

Particulars

LLP

Private Company

Members

Minimum 2 Partners

Minimum Member-2, Maximum Member- 200

Easy to Form, Run and manage

No Minimum Capital requirement for Incorporation

Minimum Capital for Incorporation of Private Limited Company is Rs. 1,00,000/- and for Public Limited Company is Rs. 5,00,000/-.

Management through

LLP Agreement

MOA and AOA of the Company

 

Benefits under Income Tax Law

  • Saving of Dividend Distribution Tax. (There is no provision of Dividend Distribution Tax in LLP)
  • Saving of MAT Tax. (Because LLP don’t give credit of MAT)
  • Saving of Income Tax due to Interest and remuneration payable to partners as salary payable to directors.

Procedure to convert a Company into LLP.

  • Obtain DIN(Director Identification No) & DSC (Digital Signature)

Designated Partners of LLP must have their DIN and DSC.

  • Board Meeting
  • Call meeting of board of Director.
  • Pass Resolution for Conversion of Company into LLP.
  • Pass Resolution to authorize any director to Apply for Name of LLP.

 

  • Application for Name availability

Any private company or unlisted public company can be converted into LLP. However, in this case LLP shall take same name as that of the company at the time of conversion.

  • File LLP E-Form-1 with ROC

Attachments: Board Resolution passed by the Company approving the conversion into LLP shall be attached with the aforesaid form

  • Obtaining Name approval Certificate

 

  • Filing of Incorporation documents

File LLP Form-2

Attachment:

  • Proof of Address of Registered office of LLP.
  • Subscription sheet signed by the promoters along with the consent of partners.
  • Detail of LLP(s) and/ or company(s) in which partner/ designated partner is a director/ partner
  • Drafting of LPP Agreement

LLP agreement has to be drafted line with LLP Act. It is not mandatory to file LLP agreement at the time of registration and same can be file within 30 days from the date of incorporation. Designated partners are responsible for doing all acts, matters and things that are required to be done for complying with the provisions of the LLP act. They are liable to all penalties imposed on the LLP. So it is very important to draft LLP agreement with professional help.

  • Filing of application for Conversion

File LLP E-Form-18 with the ROC

Attachment:

  • Statement of shareholders.
  • Incorporation Documents & Subscribers Statements in Form 2 filed electronically.
  •  Statement of Assets and Liabilities of the company duly certified as true and correct by the auditor.
  • List of all the Secured creditors along with their consent to the conversion.
  • Approval of the governing council (In case of professional private limited companies)
  • NOC from Income Tax authorities and Copy of acknowledgement of latest income tax return.
  • Approval from any other body/authority as may be required.
  • Particulars of pending proceedings from any court/Tribunal etc.

 

  • REGISTRAR OF LLP TO ISSUE A CERTIFICATE OF REGISTRATION in Form19 as to conversion of the LLP. The Certificate of Registration issued shall be the conclusive evidence of conversion of the LLP.

 

  • Filing of LLP E- Form -3

Attachment: LLP Agreement

  • Filing of E-Form 14 (Intimation to Roc)

As per notification dated 15th October, 2015 issued by Ministry, Form-14 is not required to be filed in case of conversion of private company/unlisted public company into LLP.

Attachment:

  • Copy of Certificate of Incorporation of LLP formed.
  • Copy of incorporation document submitted in Form 2

 

  1. Conversion of a Private Company to LLP is comparatively beneficial in terms cost, benefit and compliance.The conversion from the existing corporate structure can be made to a LLP while retaining the advantages of Limited Liability and less compliances.LLP may be more suitable for small entrepreneur and professionals particularly. 

Have questions? contact ADCA - one of the main providers of accounting services in Bangalore.

Service Tax Exemption to Educational Institutions Restricted

23 Jul,2018

Presently the following services are exempt from service tax as per entry no 9 of the Mega Exemption Notification 25/2012.

Services provided :-

(a) by an Educational Institution to its students, Faculty, and Staff.

(b) by any person to an Educational Institution, by way of

   (i) transportation of students, faculty and Staff.

   (ii) Catering, or cleaning or house keeping services performed in such educational institution.

  ( iii) Services relating to admission to , or conduct of examination by, such institution.

The notification 25/2012 defines Educational Institution as an Institution providing services by way of :

(i) pre- school education and education up to higher secondary school or equivalent.

(ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force.

(iii) education as a part of an approved vocational education course.

The new notification No 10/2017- ST dated 08.03.2017 has been issued to curtail the exemption granted earlier to few specific services provided to educational institutions.  The notification provides that nothing in clause (b) of entry no 9 of mega exemption notification 25/2012 shall apply to an educational institution other than an institution providing service by way of pre-school  education and education up to higher secondary school or equivalent.   The amendment is effect from April 1st 2017.

In effect the following services provided to educational institution other than an institution providing service by way of pre-school  education and education up to higher secondary school or equivalent, which were till now were exempt will be taxable to service tax with effect from April 1st 2017.

(b) by any person to an Educational Institution, by way of

   ( i) transportation of students, faculty and Staff.

  (ii) Catering, or cleaning or house keeping services performed in such educational institution.

( iii) Services relating to admission to , or conduct of examination by, such institution.


Want to know more about tax exemption for business? Get in touch with ADCA, which offer accounting services in bangalore.

GST

LEVIABILITY UNDER GST

23 Jul,2018

Leviability is essential feature to collect tax from any taxable person. In absence of leviablity, tax could not be collected. Under the new tax regime GST, the concept of leviablity is paradigm history in the levaiblity of indirect taxes.

1.Introduction

Leviablity gives the power to the taxation regime to collect taxes from any person.   In the absence of levy, tax could not be charged and collected. GST contains crucial provision in relating to levy of tax which are discussed hereunder.

2.Levy of tax under CGST & SGST

The power to levy tax is provided in section 8 of the revised model of GST law. Asper the relevant section Central & State GST is to be levied on interstate supply of goods and services as per the value determined of the said goods and services in terms of provision of this act. Although the rates of taxes is not notified in the law itself but the law provides for the caping of taxes rates and the said cap is fourteen percent.

3.Levy of tax under GST

The power to levy taxes is provided in section 5 of the revised model IGST law. As per the relevant section IGST is to be levied on all interstate supply of goods and services as per value determined of the said goods and services in terms of the provisions of the act. Although the rates of taxes is not notified in the law itself but the law provides for caping of tax rates and the said cap in twenty eight per cent.

IGST will be levied on goods imported into India inaccordance with the provisions of section 3 the Customs Tariff Act 1975 at the point when duties of customs are levied on the said goods.

4.Reverse Charge

Presently, payment of tax on reverse charges basis is applicable in case of provision of services. The concept will be carried forward as legacy for services and newly introduced for supply of goods. However, the goods and services tobe notified for reverse charge will be on the recommendation of the council, In the case of reverse charge the person receiving the supply has to pay taxes and the provisions of the act shall apply accordingly.

5.Electronic Commerce Operator.

In the digitization era an increasing online shopping of goods and services ,electronic commerce are also covered in the tax net and the same shall be liable to Pay taxes on notified goods and services on the recommendation of the council.

Further in the present global market, one can provide platform for supply of goods and services from any part of the world. Accordingly, if the electronic commerce operators situated in any parts of the world except India, then he hasto appoint some person on its behalf to comply with the provisions of the GST.

6. Composition of Levy

The small scale business man always enjoys some privileges. Composition levy is one of such benefits. Present laws contains different monetary limits from composition levy in addition to different monetary limits in different states. However GST being a uniform law will provide single composition scheme to be applicable through India. Accordingly business with taxable turnover not exceeding fifty lakhs can avail the option of paying composition fees. The composition fees are different for manufacturers and others. In case of manufacturing industry rate of composition is 2.5% and for others it is 1%.

7. Restriction under Composition Levy

Payment of option under composition scheme calls for limitation or restrictions, stated as under-

  1. This option is not available to the person who is engaged in supply of services. Meaning thereby the provider of service cannot opt for composition scheme. Further the language suggest that in case of a person engaged in supply of services and goods both the also the option of composition scheme in not available.
  2. The option to pay composition schemes is not available to the person who are not leviable to tax under this act.
  3. The person making inter-state supply can also not avail of this option.
  4. The electronic commerce operator who is required to collect tax at source also cannot avail of this option.
  5. The manufacturer of notified goods are also not eligible to avail of the option of payment of taxes under composition fees.
  6. In case turnover RS 50 lakhs the for the turnover exceeding RS 50 lakhs this option for paying tax   under composition scheme will not be available.
  7. The person availing the benefit of paying taxes under composition scheme are not eligible to avail of input tax credit.

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