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Services we provide under Convert Your Business
- Proprietorship to Pvt Ltd Company
- Compliance Check - Secretarial Audit
- Due Digilence
- RBI Compliance
- Partnership to LLP
- Private to Public Limited Company
- Private to One Person Company
How to Convert Proprietorship to Private Limited Company – Overview
In India, many entrepreneurs initially start their business as a sole proprietorship because of its low compliance requirements. After certain years, the business will boom and the revenues involved will become more.
Now, in order to limit the liability and to detach the bank accounts and tax filing of an individual, a sole proprietorship to private limited company conversion will be done.
By conversion of proprietorship into private limited company under companies act 2013, it becomes a separate legal entity thereby reducing the risk of liability and the personal assets will remain untouched except in case of fraud.
The private limited company will be governed under the companies act, 2013, and the shares are held privately and not offered to the public. Similarly, the structure of taxation will be unique under income tax act, 1961, and different from the sole proprietorship, which considers the income as individual income.
Takeover of Sole Proprietorship by Private Limited Company in India: Benefits
Registering a company offers many benefits. A registered company makes it genuine and increases the authenticity of your business.
- Shields from personal liability and protects from other risks and losses.
- Attracts more customers
- Procures bank credits and good investment from reliable investors with ease.
- Offers liability protection to protect your company’s assets
- Greater capital contribution and greater stability
- Increases the potential to grow big and expand
- You will also get Zero Balance Current Account – Powered by DBS Bank *
- Shareholders have a right to appoint the directors to act on behalf of him.
- Unlike a sole proprietorship, even after the death of directors/ shareholders the company will exist without any discrepancies.
- The shareholders and the directors will get complete immunity from being sued by the third party except personal issues.
- It attracts lower tax rates and subsidies under the Income Tax Act, 1961.
- The profit of the private limited company is subjected to the tax rate of 30% + surcharge & cesses as applicable.
Checklist for Registering a Company in India
As per the rules and regulations of Company Act, 2013, in order to incorporate any company to be registered in India, the below conditions have to be met.
Two Directors
- A private limited company must have at least two directors and at most, there can be 15. Of the directors in the business, at least one must be a resident of India.
Unique Name
- The name of your business must be unique. The suggested name should not match with any existing companies or trademarks in India.
Minimum Capital Contribution
- There is no minimum capital amount for a company. A company should have an authorized capital of at least Rs. 1 lakh.
Registered Office
- The registered office of a company does not have to be a commercial space. Even a rented home can be the registered office, as long as an NoC is obtained from the landlord.
Memorandum Of Association( MOA)
- In the objective clause of Memorandum Of Association (MOA), there should be a phrase present “ the takeover or acquisition of a sole proprietorship concern”.
Annual returns
- The private limited company should file an annual financial accounts statement and annual returns with the registrar of the company every year.
How to Register a Company Online? – A detailed registration process?
Company Registration in India will boost the progress of startups and provide an additional edge over those who have not registered. The Ministry of Corporate Affairs governs the company registration process with rules and regulations framed in accordance with the law.
Conditions to be followed prior converting a sole proprietorship to private limited company
- After incorporating a new private limited company, all the assets and liabilities of the old sole proprietorship will be completely transferred to the company.
- Even after the conversion takes place, the old sole proprietorship will hold 50% of shares in a new private limited company. i.e 50% of the voting rights will be held by a sole proprietorship.
- The old sole proprietor will hold shares for a minimum period of 5 years from the date of incorporation of a new private limited company.
- Similarly, there will not be any monetary consideration between a sole proprietorship and private limited company as it is a mere conversion, not sale.
Procedure to Convert Proprietorship to Private Limited Company
- Step 1: Application for DSC (Digital Signature Certificate).
- Step 2: Apply for the DIN (Director Identification Number)
- Step 3: Application for the name availability.
- Step 4: Filing of the EMOA and EAOA to register a private limited company
- Step 5: Apply for the PAN and TAN of the company
- Step 6: Issued certificate of incorporation by RoC with PAN and TAN
- Step 7: Opening a current bank account on the company name
How Can We Help in Registering Your Company in India?
The Private Limited Company Registration process is completely online, so you don’t even have to leave your home to get your entity registered. At Spinach Laws , we complete the Company Registration online within 14 days.
Spinach Laws Company Registration package includes:
- DIN and DSC for two Directors
- Drafting of MoA & AoA
- Registration fees and stamp duty
- Company Incorporation Certificate
- Company PAN and TAN
- Zero Balance Current Account – Powered by DBS Bank *
Documents Required for Conversion of Sole Proprietorship to Private Limited Company
In India, Private Limited company registration cannot be done without proper identity proof and address proof. Identity and address proof will be needed for all the directors and the shareholders of the company to be incorporated. Listed below are the documents that are accepted by MCA for the online company registration process acceptable.
Identity And Address Proof
- Scanned copy of PAN Card or Passport (Foreign Nationals & NRIs)
- Scanned copy of Voter’s ID/Passport/Driver’s License
- Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill.
- Scanned passport-sized photograph specimen signature (blank document with signature [directors only])
For the foreign nationals, an apostilled or notarized copy of the passport has to be submitted mandatorily. All documents submitted should be valid. The residence proof documents like the bank statement or the electricity bill must be less than 2 months old.
Registered Office Proof
For online company registration in India, the company must have a registered office in India. To prove admittance to the registered office, a recent copy of an electricity bill or the property tax receipt or water bill must be submitted. Along with the rental agreement, utility bill or the sale deed and a letter from the landlord with her/his consent to use the office as a registered office of the company should be submitted.
- Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill
- Scanned copy of Notarized rental agreement in English
- Scanned copy of No-objection certificate from the property owner
- Scanned copy of sale deed/property deed in English (in case of owned property)
E-Form Spice 32
It is an incorporation e-form provided at the final stage of incorporation of a company. Here, all the mandatory details should be filled in this form and submitted along with the required documents.
What is a Secretarial Audit?
A secretarial audit is a part of the organization’s total compliance management system. The secretarial audit acts as an effective tool for corporate compliance management. Also, it benefits in detecting the noncompliance and to take the respective measures.
Secretarial Audit applicability is a process to check the company compliance with the provisions of many laws and rules or regulations or procedures, records, accounting, maintenance of books, etc. An independent professional can take control of the secretarial audit of the company. It is a procedure to make sure that the legal and procedural specifications are followed and observed. No matter what, the secretarial audit report applicability follows the due process. It is primarily a mechanism to monitor compliance concerning the requirements of stated laws.
Secretarial Audit is applicable and mandatory to which companies?
It is mandatory for the following companies which relate to the secretarial audit applicability and has to be followed. These are mentioned below:
- Every Listed Company
- Every public company (Conditions apply)
When it comes to a public company, then it has a few restrictions:
A public company with a Paid-up share capital of more than Rs. 50 crore and a turnover of more than Rs. 250 crore is only applicable. If anyone of the criteria meets, a secretarial audit is mandatory for that as well. A Company Secretary who has been practicing has also been recognized to conduct a secretarial audit to organizations.
Who can be appointed as Secretarial Auditor?
Members of the Institute of Company Secretaries of India, who are holding the certificate of practice which certifies to perform as a secretarial audit, can only conduct Secretarial Audit and provide with the secretarial audit report applicability to the Company or organization.
Secretarial Audit Report
For every company, the secretarial audit report is applicable only when it is fulfilled by the following conditions such as:
- A Company Secretary in Practice shall prepare for the audit report.
- It shall be prepared in Form M-3.R
- Considering the increasing importance of Corporate Governance, it has annexed the Board’s Report.
What are the services provided under the Secretarial Audit?
The secretarial audit checks compliance of various legislations including the Companies Act and other corporate and economic laws applicable to the company. A secretarial audit is a process to check the compliances made by a company under the Corporate Law and the other relevant laws, regulations, rules, and procedures, etc. It was enacted vide section 204 of the 2013 Companies Act. Under this, the regulators monitor the companies for compliances as needed by the stated laws and processes.
Every company must comply with government rules, regulations, and laws. Any non-adherence to the compliances can be dicey for the company. Organizations need to conduct a periodical examination of their work to point out the errors and to maintain a strong compliance mechanism system in any organization.
It is maintained that periodical inspections of the records give the Authority the exact information of the company’s compliance policy.
A detailed secretarial audit helps:
- To check reports on compliances.
- To protect the interest of employees, customers, society, etc.
- To avoid any unnecessary legal actions by the law enforcement agencies.
- To point out inadequate compliances and non-compliances.
- To ensure that the procedural and legal requirements are suitably complied and that is important for the image and the goodwill of any company.
Benefits of Secretarial Audit (Statutory or Forensic)
- Possessing a secretarial audit will help your organization have an effective mechanism with the legal and procedural requirements to make sure of the compliance handled.
- It helps in spreading a level of confidence to the directors & Key Management Personnel (KMP), etc.
- The company directors can concentrate on their important business matters and meeting only when the Secretarial Audit ensures legal and procedural requirements in a safer, better and audible way.
- Thereby, it helps to reduce the work of law enforcement authorities.
- By following this, it shows the right path to investors by showcasing your legal records.
- secretarial audit applicability is a productive governance and compliance risk management tool. It produces the result in a much better way.
Companies Act, 2013
- Review of Charter Documents alterations if any and related compliances
- Share Capital and Debentures Rules – Compliance related to ICDR, Pre and Post Issue Compliances
- Borrowings – Borrowing Limit, Pre and Post Borrowing Compliances
- Public Deposit if any – Pre and Post Compliances
- Board and General Meetings – Notice, Agenda and Minutes
- Declaration and Payment of Dividend – Pre and Post Compliances
- Board of Directors – Appointment & Resignation
- Internal Audit and Internal Audit Report
- Auditor Appointment, Tenure of Appointment & Rotation
- CSR Compliances – Committee Formation, Limit of Contribution
- Related Party Transactions & its Compliances
- Inter Corporate Loan, Investments and Corporate Guarantee
- Buy-Back of Shares – Pre & Post Compliances
- Annual Return & Annual Compliances
- Member Register and Change in any Shareholding Pattern
- Secretarial Standards
Foreign Exchange Management Act
- Foreign Direct Investment
- Overseas Direct Investment
- External Commercial Borrowings
Securities And Exchange Board Of India Act, 1992
- The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
- The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015
- The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009
- The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993
- The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
- The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015
Labour, Fiscal & Other Laws
- Factories Act, 1948
- Industrial Disputes Act, 1947
- The Payment of Wages Act, 1936
- The Minimum Wages Act, 1948
- Employees’ State Insurance Act, 1948
- The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952
- The Payment of Bonus Act, 1965
- The Payment of Gratuity Act, 1972
- The Contract Labour(Regulation and Abolition)Act,1970
- The Maternity Benefit Act, 1961
- The Child Labour (Prohibition and Regulation Act), 1986
- The Employees’ Compensation Act, 1923
- The Apprentices Act, 1961
- Equal Remuneration Act, 1976
- The Employment Exchange (Compulsory Notification of Vacancies) Act, 1959
- The Environment (Protection) Act, 1986
- The Sexual Harassment Of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
- The Water (Prevention & Control of Pollution)Act,1974
- The Air (Prevention & Control of Pollution) Act, 1981
- Tax deducted at Source
- Advance Tax
- GST
- Professional, Property & Dividend Tax
Securities Contracts (Regulation) Act, 1956 (‘SCRA’)
Depositories Act, 1996
* Labour, Fiscal, and Other laws are limited to the applicability of the Company
Documents Required for Secretarial Audit
- Charter Documents
- Last year Secretarial Audit Report
- Statutory Registers
- Board and General Meeting Minutes & Notices thereto
- Audited financial statements
- Filings & Intimations with Registrar of Companies, Stock Exchanges, Newspaper Advertisements (if Listed)
- Annual Performance Reports, Lease Deed, LUT cum Bond, softex returns
- Filings with other statutory departments
- Filings with RBI (If there is a foreign investment)
- ECB Returns (if there are foreign borrowings in the company)
- Registers maintained under Labour Laws
- Disclosures and Declaration for code of conduct received from the directors
- Sitting fees and Remuneration details paid to directors
- Proof of spending CSR amount
- SAST Disclosures
- Bank account details for dividend
Financial Due Diligence: Overview
Investors typically carry out due diligence to verify that the company consistently complies with all applicable laws and business procedures. Prior to any bank loan funding, business sale, private equity investment, or other transaction, a corporation typically undergoes due diligence.
The company’s compliance, financial, and legal elements are typically examined throughout this procedure and documented. Before a formal contract is signed by both parties, it is the process of evaluating all the relevant facts of a business or contract. Due diligence on the purchase is not just restricted to the buyers; sellers can also do it. Factual, background, legal, and accounting checks are all part of the due diligence process. To avoid unpleasant shocks after a sale is closed, it is better to do due diligence of the company.
Types of Due Diligence
There are 3 types of due diligence-
Commercial Diligence
It examines an investment’s quality, its commercial potential, and the persons involved.
Legal Matters Diligence
It examines the regulatory difficulties and legal ramifications of both intra- and inter-corporate transactions
Finances Diligence
It supports the company’s operational, financial, and commercial presumptions. This procedure also entails a thorough examination of the target company’s internal controls, audit procedures, accounting rules, and tax compliances.
Reasons for Due Diligence
- To examine and confirm the information and particulars mentioned during the investment or transaction process
- To identify any potential flaws in the investment, contract, or transaction opportunity in order to avoid engaging in dishonest commercial practices or engaging in unethical operations
- To gather all the facts and details required for analysing the deal.
- Verifying compliance with the investment or transaction requirements with the investment or deal opportunity.
What Elements of a Financial Due Diligence Report Are Crucial?
The following are some crucial components of a financial due diligence report: of a company:
Financial Aspect: The financial due diligence report of a company should focus on specific ratio analysis and key financial facts to comprehend the target company’s overall situation
Viability: To determine the target company’s viability, it is important to carefully examine its business and financial strategies
Personnel Considerations: The report should include a complete evaluation of the competence and reliability of the company’s management
Environmental Considerations: No firm can operate in a vacuum from its surroundings. It is crucial to research the environment and its overall effects on the organisation in question
Crucial Component: The due diligence process is evaluating the technology that the organisation has access to at any given time. Making a decision about the next step would be much assisted by such an evaluation.
Liabilities: The financial due diligence report of a company should account for any current and possible liabilities (such as legal disputes, regulatory problems, and so on) that the company may experience.
What Procedures Does a Corporation Follow Throughout Its Due Diligence?
The following steps make up a company’s due diligence procedure:
Evaluation of MCA Documents
A company’s due diligence procedure starts at the Ministry of Corporate Affairs (MCA). The master information on a company is made available to the public on the website of the Ministry of Corporate Affairs. Anyone can also access all documents submitted to the
Register of Companies for a Lesser fee
In general, this information from the MCA website is first checked. The data and paperwork obtained in this step consist of
- Organisational Data
- The incorporation date
- Authorised funds
- Paid-up capital
- when the most recent annual general meeting was held
- The most recent balance sheet’s date
- Situation of the business
- Director Detail
- The company’s directors
- The day that directors were appointed
- Registered charges
- The company’s secured lenders’ information
- Number of secured loans
- Documents
- The incorporation certificate
Association bylaws
In addition to the aforementioned, the company’s financial data and other filings with the MCA regarding other elements of the company can be downloaded and examined. The examination of the company’s MCA records would give the individual conducting the due diligence a good overview of the business.
Evaluation of the Articles of Association (AoA)
Analysis of a company’s AoA is essential during the due diligence process to identify the various classes of equity shares and their voting rights. The articles of association of a firm may forbid the transfer of shares. Therefore, it is important to thoroughly review the AoA before deciding on the share transfer procedure.
Evaluation of the Company’s Statutory Registers
The Companies Act of 2013 mandates that private limited companies maintain a number of statutory registers pertaining to share transfers, share allotments, board meetings, the board of directors, etc. As a result, it is necessary to review the statutory registers of a company to gather and verify information on directorship and shareholding.
Evaluation of the financial statements and the book of accounts
The Companies Act of 2013 mandates that businesses retain complete transaction records and a book of accounts. The company’s financial statements must be compared to the audited and validated information on specific financial transactions.When creating the due diligence report of a company, the following issues should be considered:
- Examining the bank statements for accuracy
- Assessment and verification of all assets and liabilities
- Confirmation of the cash flow data
- Comparison of all financial statements’ accuracy with transactional data
Evaluation of Taxation Issues
During the due diligence process, a company’s taxation related factors must be carefully examined. To guarantee that there are no unexpected/expected tax obligations are made against the company at a later time. When creating the financial due diligence report, the following factors pertaining to a company’s tax situation must be examined:
- The submitted income tax return
- Income tax paid till date
- Calculating the company’s income tax obligation
- filed ESI/PF returns
- ESI/PF contributions
- Calculating ESI and PF payments
- The VAT, GST, and service tax returns submitted
- Payments for the VAT, service tax, and GST
- The foundation for calculating payments for the GST, service tax, and VAT
- Returns TDS
- Payment of TDS
- Calculating TDS
Evaluation of Legal Aspects
A trained legal professional must conduct a thorough legal audit of the business to determine if there are any ongoing or unresolved legal activities, lawsuits brought by or against the business, and the legal investigation into the company’s whole real estate portfolio:
- No secured creditor has objected to the sale of the business
- Verification of the court filings and, if any, court documents
- Evaluation of operational elements
During the process, it is crucial to develop a full grasp of the business operations, business model, and operational data. All operational components, including site visits and employee interviews, must be reviewed thoroughly. The following items must be discussed and recorded during the review of the operational aspects:
- Business strategy
- Number of personnel
- Number of client’s
- A production’s details
- Vendor details
- Machinery details
- Utilities
Advantages for Conducting Finance Due Diligence
Capitalisation
Aids in determining how big and volatile the company’s market is. Both require comparison and analysis.
Industries and Business Rivals
In order to understand the target company, compare and research the boundaries of the rivals.
Considering Risks
It aids in learning about general industry risks as well as risks unique to a given company, and it determines whether any persistent risks exist. It foretells any prospective, unforeseen threats that may arrive soon.
Visionary
Aids in the analysis of the target company’s overall vision and future financial prospects.
Checklist for Due Diligence of a Company
- A general record and a business strategy presented
- Businesses and ownership
- Regulation and conformity
- Information about administration, accounting and finances
- Target systems for businesses targets taxes
- Review of legal matters.
Importance of Financial Due Diligence Report
Mergers and Acquisitions
Due diligence is accomplished from both the client’s and the dealer’s viewpoints. The seller focuses on the experience of the buyer, the financial capabilities to complete the deal, and the ability to uphold commitments made, whereas the consumer investigates the financials, litigation, patents, and a wide range of important information.
Partnership: For necessary alliances, connections, business mergers, and other such partnerships, due diligence is performed.
Joint Enterprise And Collaborations: When a corporation joins forces with another, there are questions about the reliability of the combined entity. assuming that the opposing company’s position addresses whether their own supplies are adequate.
Proposal for RBI Compounding Application
Section 13 of the FEMA Act states that if an individual contravenes any provisions mentioned in the Act or any rule, notification, regulation, order or direction issued while exercising the powers of the Act , or contravenes any condition subject to authorizations issued by the RBI, he shall be levied a penalty up to thrice the amount related to such a contravention. This amount can go to a maximum of Rs 2 lakhs, wherever the said amount is quantifiable. Whenever the amount is not quantifiable or the same is continuous in nature, the penalty may be extended to Rs 5000 per day, after the first day of the discovery of such a contravention.
In the context of law, compounding means a cordial or amicable settlement that may lead to avoiding prosecution for a past offence. However, compounding is not regarded as an intrinsic right. It is only provided/delegated by the concerned Acts of law under which the said offence has been committed.
Basic Concepts
1. As mentioned in Section 15 of the FEMA (Foreign Exchange Management Act) 1999 compounding of contraventions is permitted. It also empowers the RBI ( Reserve Bank of India) to compound as per laid down provisions of Section 13 of FEMA. However, it will exclude contraventions under section 3(a), if an application is made by the person committing the said contravention.
Besides, wherever any such contravention has been compounded, no further proceeding, continuation or initiation will be there., with respect to the contravention thus compounded.
2. Section 13 of the Act says that if an individual contravenes any provisions mentioned in the Act or any rule, notification, regulation, order or direction issued while exercising the powers of the Act , or contravenes any condition subject to authorizations issued by the RBI, he shall be levied a penalty up to thrice the amount related to such a contravention. This amount can go to a maximum of 2 lakhs, wherever the said amount is quantifiable. Whenever the amount is not quantifiable or the same is continuous in nature, the penalty may be extended to Rs 5000 per day, after the first day of the discovery of such a contravention.
3. However, by exercising the powers conferred by Section 46, along with that of Section 15, sub-section (1) of the FEMA, the Central Government has framed the Foreign Exchange (Compounding Proceedings) Rules, 2000. It relates to the compounding contraventions mentioned in Chapter IV of FEMA and has come into effect from 03.05.2020.
Documents Required for RBI Application
Good News! Just Some Basic Documents. Just See Our Checklist Below:
- Memorandum received from RBI
- All the FIRC’s & FDI report filed with RBI
- Board resolutions in respect of item 2
- FCGPR & allotment filed with RBI & ROC
- Previous compounding offences, if any
- Litigations
Procedure for RBI Compounding Application
- Preparing the compounding application and submitting to the regional office of the RBI
- Getting the order and paying the penalty with RBI
Can a Partnership Be Converted into LLP Overview
In comparison to a standard partnership, a limited liability partnership (LLP) can be shown to be a far better business structure. Personal liabilities have an impact on partnerships, and LLPs do away with the Indian Partnership Act of 1932’s overbearing requirements. In addition, there are tax advantages, no audit obligations below a specific capital threshold, no partner cap, and no capital contribution restrictions. Read through to know more about converting partnership to LLP.
Conditions For Converting a Partnership Firm to LLP
- According to Section 55 of the Limited Liability Partnership Act of 2008 read with Schedule II of the Act, a partnership can partnership be converted into llp.
- There cannot be any new partners or for existing partners to stop being partners during the application process since all partners of the firm must be partners of the LLP.
- Before submitting such an application, at least two partners must have DPINs and all Partners must possess a current Digital Signature Certificate (DSC).
- The Partnership Act of 1932 requires that the partnership entity being converted be registered.
- The approval of all partners is required.
- The partners of the LLP must be the same as those of the partnership firm.
- After the conversion is finished, any partner who wants to leave the LLP can do so.
- All Designated Partners must receive a Director Identification Number (DIN) or Designated Partner Identification Number (DPIN).
Key Differences Between a Partnership and an LLP
Here is a table that explains the key differences between a partnership and an LLP:
| Basis | Partnership | LLP |
|---|---|---|
| Separate Legal Entity | No. | Yes. |
| Liability | Unlimited. Personal assets of the partners are also liable. | Limited to the extent of their capital contribution. |
| Books of Accounts | Not mandatory. | Should be prepared according to the provisions of the LLP Act. |
| Number of Members | Maximum 20. In the case of a banking business, the maximum number is 10. | No limit on the maximum number of partners. |
| Digital Signature Certificate (DSC) | No such requirement. | All designated partners of the LLP should have a Digital Signature which is a prerequisite for e-filing. |
Benefits of a Limited Liability Partnership
There are numerous benefits to LLP which will give clarity on why converting partnership to an LLP benefits the individual:
Separate Legal Entity:
- An LLP is a separate legal entity from its partners. Each partner can sue the other in case a situation arises.
- It has an uninterrupted existence that follows perpetual succession, i.e, the partners might leave, but the business will remain. A term of dissolution has to be mutually agreed upon by the firm, to dissolve.
Flexible Agreement:
Transferring the ownership of LLP is simple. A person can be quickly inducted in as a designated partner, and the ownership will switch to them.
Suitable For Small Business:
- LLPs with a capital of less than 25 lakhs and turnover less than 40 lakhs per year, do not require any formal audits. It makes registering as LLP beneficial for small businesses and startups.
- An LLP can own or acquire property because it is recognized as a juristic person. Partners of an LLP cannot claim the property as theirs.
No Owner /Manager Distinction:
An LLP has partners, who own and manage the business. This is different from a private limited company, whose directors may be different from shareholders. For this reason, venture capitalists do not invest in the LLP structure.
Process To Register LLP in India
Here is the process to register LLP in India. Spinach Laws provides a seamless and hassle-free process and one can check here to know the quick and detailed process to register an LLP.
Step 1: Obtain Digital Signature Certificate (DSC)
Step 2: Apply for Director Identification Number (DIN)
Step 3: Name Approval
Step 4: Incorporation of LLP
Step 5: File Limited Liability Partnership (LLP) Agreement
Documents for an LLP Registration
When one plan to convert partnership to LLP, there are a few documents one must carry, here is the list:
To Be Submitted By Partners
- Scanned copy of PAN Card or passport (Foreign Nationals & NRIs)
- Scanned copy of Aadhar Card/ Voter’s ID/Passport/Driver’s License
- Scanned copy of latest bank statement/telephone/mobile bill or electricity/gas bill
- Scanned passport-sized photograph Specimen signature (blank document with signature [partners only])
- Note: Any one of the partners must self-attest the first three documents. In the case of foreign nationals and NRIs, all the documents must be notarized (if currently in India or a non-Commonwealth country) or apostilled (if in a Commonwealth country).
For Registered Office
- Scanned copy of the latest bank statement/telephone/mobile bill, or electricity or gas Bill
- Scanned copy of the notarised rental agreement in English
- Scanned copy of No-objection certificate from the property owner
- Scanned copy of sale deed/property deed in English (in case of owned property)
Why Spinach Law
With Spinach Law , registering an LLP is one of the easiest processes in India. We make the entire compliance procedure simple and provide our best efforts to complete the process as early as possible. The Ministry of Corporate Affairs comes up with updates to the LLP process and Spinach Law takes care of them for you.
- DSC for one director and DIN for up to three directors
- Drafting of MoA & AoA
- Registration fees and stamp duty
- Company Incorporation Certificate
We also provide assistance with:
- Free consultation, followed by subsequent meetings to clear every concern you may face.
- Complete support on opening a current bank account
- Comprehensive and on-time updates on ROC compliances.
- Online accounting software valid for one year.
- A master file that contains all the documents needed to file the incorporation.
- A dedicated service manager is present at all times.
- Being a separate legal entity from the existing partnership firm, LLP will have its own pan card, and a new/separate GST Registration on the name of LLP.
- You will also get a zero balance current account!
What is a Private Limited Company and a Public Limited Company?
Let us have a brief understanding of what is private and public limited company.
Private Limited Company
A company that is privately held for small businesses. The liability of the members of a private limited company is restricted to the number of shares respectively held by them. The shares of a private limited company can’t be traded.
Public Limited Company
A company whose shares are traded on a stock exchange and can be purchased and traded by anyone. It is also called a publicly held company. As the name suggests, a public limited company is a company that offers company shares to the general public. The Company’s Act 2013 also defines a public limited company as one that has limited liability and offers company shares to the public. Anyone can acquire the stocks of such a company either through stock-market trading or via IPOs ( Initial Public Offerings).
Benefits of a Public Limited Company
Quick Share Transfer
Shareholders of a public limited company can transfer their shares with great ease. All they need to do is file the share transfer form and hand over the share certificate to the buyer. The process of transferring a share to another business structure is very tedious.
Raise Capital
The advantage of the public limited structure is that you can leverage it to raise capital from the general public through shares. This would, however, require listing on a stock exchange. All public limited companies can issue fixed deposits, debentures, convertible debentures to the general public.
Greater Credibility
Public limited companies need to disclose their audited statement of accounts, inform the regulatory bodies of any structural change, and hold annual general body meetings for all shareholders. These compliance procedures bring a great deal of credibility to the organization.
Checklist Requirements for Conversion of a Private limited company to Public limited company
- DSC (Digital Signature Certificate) and DIN ( Director Identification Number ) of two directors.
- Preparation of MOA ( Memorandum of Association ) and AOA ( Articles of Association).
- PAN ( Permanent Account Number ) and TAN ( Tax Deduction and Collection Account Number) card.
- Name search, application and name reservation.
- CIN (Certificate of Incorporation).
Private Limited Company Vs Public Limited Company
What is the Procedure for Conversion of Private Company into Public Company?
A company already enrolled in a class may change itself as a company of another class by modification of memorandum and articles of the company. An application in this regard is required to be made to the registrar. The registrar after being convinced that all steps comply with the requirements, then it shall close the former registration of the company. After registering the documents related to the conversion, the Registrar shall issue a certificate of incorporation. The transformation of a company shall not assume any debt, claim, liabilities, and obligations. Such debt, liabilities, and contracts may be enforced and executed as if there is no such exchange.
- Calling of Board Meeting: Issue notices according to the provisions of section 173(3) of the Companies Act, 2013, for converting a meeting of the Board of Directors. The main objective of this Board meeting would be:
- Pass a board resolution to get in-principal permission of directors for the conversion of private company to a public company by altering the AOA(articles of association).
- To get the approval of shareholders, fix the date, time and place for holding an Extra-ordinary General meeting (EGM) , by way of Special resolution, for converting a private company into a public company.
- To approve the notice of EGM with agenda and statement to be added to the notice of General Meeting, as per section 102(1) of the Companies Act, 2013.
- To delegate the Director or Company Secretary to issue Notice of the Extra-ordinary General meeting (EGM) as recommended by the board under article 1(c) mentioned above.
- Pass Board resolution for an increase in the number of directors up to 3, if the number of directors is less than 3.
- Issue of EGM Notice: Issue Notice of the Extra-ordinary General Meeting (EGM) to all members and affiliates, directors and the auditors of the company following the requirements of Section 101 of the Companies Act, 2013.
- The holding of EGM meeting: It holds the Extra-ordinary General meeting on the due date, and transfers the required Special Resolution, to get the shareholder’s support for conversion of private company into a public company along with alteration in articles of the agreement, under section 14 for such conversion.
- Registrar of Company(ROC) filing: For alteration in the Article of Association for the conversion of a public limited company under section 14, few E-forms will be filed and registered with the concerned Registrar of Companies at different stages as per the details mentioned ;
- E-form- For filing special resolution with ROC, passed for conversion of private company into a public company.
- In case of modification in Article of Association for the conversion to a public company special resolution, it requires to be passed under section 14. According to section 117(3)(a), a copy of this special resolution is expected to be filed with the concerned ROC through the filing of form MGT.14 within 30 days of passing the resolution in the EGM.
- According to Rule 33 of Companies (Incorporation) Rules, 2014, for convert a private company into a public company, the application shall be listed in Form No. INC-27 with the fee. Moreover, the conversion of the company is to be registered in e-Form INC.27 to the ROC involved, with all the required annexures and with the prescribed fee.
- As per section 18, after receiving the documents for the conversion of a private limited company into a public limited company, ROC shall convince itself that the company complies with the necessary provisions for registering a company. If so convinced, ROC (Registrar of Companies) shall enclose the previous registration and issue a fresh certificate of incorporation, after registering the documents presented for change under the specific class of the company.
Documents needed for conversion of private limited into a public limited company
- A copy of the directors’ PAN card.
- Passport size photographs of directors.
- Copy of Aadhar card or voter ID.
- Copy of the rental agreement.
- Electricity or water bill (Business place).
- The copy of property papers, if it is owned.
- Landlord NOC (No Objection Certificate) for providing the format.
Convert PLC to OPC
The conversion of PLC (Private limited company) into an OPC (One Person Company) is provided as per the Companies Act, 2013, which implements a mechanism to convert one class of company into another. Section 18 of the Act, explicitly grants the conversion of an already registered private limited company starting from 1 April 2014.
The conversion of PLC to OPC would not affect the responsibilities and contractual obligations of the company before conversion, and such claims, liabilities, obligations shall be enforceable by law, and the resulting OPC shall be liable for them.
Benefits of conversion from PLC to OPC
Limits Director’s Liability
Businesses often need to borrow money. With sole proprietorships, proprietors are personally liable for all the debt. So if it cannot be repaid by the business, the proprietor would have to sell his/her car, house or jewellery to do so. In an OPC, only the amount invested in starting the business would be lost; all personal property would be safe.
Continuous Existence
If a promoter were to operate as a sole proprietorship, rather than an OPC, the business would come to an end with his/her death. Since an OPC has a separate legal identity, it will pass on to the nominee director and, therefore, continue to exist.
Fewer Compliances
An OPC can only have one director and one shareholder, so annual filings are limited to share certificates and statutory registers.
Checklist requirements for the conversion of PLC to OPC
Here are some requirements to be followed to convert the private limited company into a one-person company:
- The company should have suitably prepared its books of accounts as well as its balance sheet.
- The company has listed and filed all ROC (Registrar of Companies) returns.
- To examine whether the company has paid requisite on the result of the share certificate and that the share certificates are properly matched with the payment of stamp duty.
- The company has deducted all TDS (Tax Deducted at Source) and filed relevant TDS returns.
- The company has paid VAT and Service Tax, or GST, and filed suitable returns before initiating the conversion.
- To check whether the company is maintaining a record of minutes of the meeting, for its board and shareholders, and keep updated registers at its registered office.
- The company is registered under the shop and the establishment acts as per the applicable state laws, where they control offices, shops, warehouses, etc.
- The company complies with the requirements of the professional tax, if applicable in the state where the registered office of the company is located and the states in which it has employees.
- The company is registered under PF, if the number of employees is more than 20 and with ESIC (Employees State Insurance Corporation), if the number of employees is more than 10, and if its listing monthly returns and paying dues as expected under PF and ESIC.
A private limited company can be changed into the one-person company based on the following provisions:
- The provided capital of the company is less than Rs. 50 lakhs.
- The annual turn over of the company should be less than Rs. 2 crores during the past three progressive financial years. Additionally, if the company is new, and has not completed three years, then the turnover shall be considered from the date of its incorporation.
- The shareholder of the resulting OPC shall be only one individual of Indian nationality.
- The shareholder of the OPC is a person residing in India for 180 days of one calendar year.
- The shareholder of the resulting OPC must not have incorporated any other OPC, or he/she is not a candidate of any other OPC.
- A minor cannot be a member or part of an OPC.
How to convert a private limited company to a one-person company?
Gather a board meeting
- The directors of the company must meet and decide on a date for calling the meeting of the shareholders. Additionally, known as an Extraordinary General Meeting (EGM).
- The notice must be drafted to shareholders along with draft resolution. This must be passed as a special resolution to be adopted by the shareholder concerning the conversion of private limited to OPC.
Issue notice of EGM
- The notice of EGM is expected to be given to all the members, directors and auditors of the company. The date of issue of the notice must be 21 days before the date of EGM.
- Simultaneously, along with the notice and the agenda, the draft resolution is to be given as a special resolution, and an informative statement shall be included.
No objection form all creditors
- Initially, before the date of EGM, the No Objection Certificate (NOC) from all the creditors of the company has to be obtained.
- A copy of the approval from creditors is to be settled before the EGM.
Conduct of EGM
- The EGM must be handled as per the notice, on the assigned date, time and place. The EGM can pass a special resolution concerning the approval of altered MOA (Memorandum of Association) and AOA (Articles of association)
Filing of resolution with the ROC
- As per Companies Act, 2013 all the resolutions declared as a special resolution by the members must be registered with the ROC in Form No MGT-14, along with directed attachments within 30 days from the approaching date.
- After the endorsement of the MGT-14, the ROC records the resolution on its record.
The issue of the certificate of conversion
- On acceptance of the application for conversion, the Registrar of Companies having jurisdiction examines the application, and if complete, it is approved and issues a certificate of Private Limited company into One Person Company.
How to apply for conversion?
The application of the conversion of private limited company into a one-person company is filed using Form-INC-6 with the following statements.
- A declaration of the form with an affidavit by all the directors that all members and creditors of the company have given consent to the conversion of company into an OPC, and that the paid-up capital of the company is less than Rs. 50 lakhs and that the turnover is less than Rs. 2 crores.
- Affidavits from the members confirming the paid-up capital is less than Rs. 50 lakhs and the average turnover is less than two crores in the past three consecutive financial years.
- A certificate from a practising Chartered Accountant to confirm that the paid-up capital of the company is less than Rs. 50 lakhs and the turnover is less than two crores.
- The latest audited profit and loss account and balance sheet of the company.
- No Objection Certificate from all creditors.
- List of members and directors of the company.
- Copy of the board resolution and the specific resolution taken at the EGM, along with its notices, agenda, and informative statement.
- A modified copy of MOA and AOA, including related clauses, required for OPC.
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