Benefits in Conversion of a Company into LLP

1. Taxation

LLPs are taxed like general partnership firms. LLPs pay an effective tax of 30.9%. They are exempted from 10% surcharge (7.50% w.e.f AY 2011-12) as that on Companies. The tax will be imposed only on 10% or 40% of the LLPís income, since the firm will be allowed to pay the balance 90% or 60% to the partners as remuneration. This means, the partners will have to pay tax on the amount paid to them. Unlike Pvt. Or Public companies, no requirement for payment of Dividend distribution/Corporation Tax on distribution of income/profits among partners and there is no requirement as to Minimum Alternate Tax.

2. No Audit requirement

Audit is not required unless capital exceeding Rs. 25 lakhs or turnover exceeding Rs. 60 lakh.

3. Automatic transfer

All the assets and liabilities of the Company immediately before the conversion become the assets and liabilities of the LLP.

4. No Stamp Duty

All movable and immovable properties of the company automatically vest in the LLP. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.

5. No Capital Gain Tax

No Capital Gains tax shall be charged on transfer of property from Company to LLP, subject to the following conditions:

􀀀 The total sales, turnover or gross receipts in business of the company do not exceed sixty lakh rupees in any of the three preceding previous years;

􀀀 The shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company;

􀀀 No consideration other than share in profit and capital contribution in the LLP arises to partners;

􀀀 The erstwhile shareholders of the company continue to be entitled to receive at least 50 per cent of the profits of the LLP for a period of 5 years from the date of conversion;

􀀀 All assets and liabilities of the company become the assets and liabilities of the LLP; and

􀀀 No amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the company for a period of 3 years from the date of conversion.

6. Carry Forward and Set off for Losses and Unabsorbed Depreciation

The accumulated loss and unabsorbed depreciation of Company is deemed to be loss/ depreciation of the successor LLP for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor LLP.

7. No Limit on number of shareholders/partners

Unlike private limited companies (shareholders limited to 50), an LLP can have unlimited number of partners.

8. Minimal Compliance Level & Cost effective model

There is no need of compliances related to meetings and maintenance of huge statutory records.

9. Continuation of Brand Value

The goodwill of the Company and its brand value is kept intact and continues to enjoy the previous success story with legal recognition.