A business can convert from a company into an LLP, or from an LLP into a company — but the two directions are far from mirror images. They have different conditions, different forms, and, crucially, very different tax outcomes. This guide walks through both, so you can see which way fits your situation. For the ongoing obligations on either side, see our guides to LLP annual compliance and company compliance.
Why convert either way
The two directions are usually driven by opposite needs:
- Company → LLP appeals to smaller businesses wanting lighter compliance, no dividend-distribution layer, and flexible profit-sharing — an LLP has no AGM, no board-meeting minimums, and simpler returns.
- LLP → Company appeals to businesses that need to raise equity or venture capital, issue ESOPs, or scale — things an LLP structure can't easily do. It's the classic path for a growing startup.
---
Part 1 — Converting a Company into an LLP
Legal basis
- A private company converts under Section 56 and the Third Schedule of the LLP Act, 2008.
- An unlisted public company converts under Section 57 and the Fourth Schedule.
- Both are read with the LLP Rules, and the tax treatment sits under Section 47(xiiib) of the Income Tax Act.
The conditions
Before you can convert a company to an LLP:
- the company must be private (or unlisted public);
- there must be no security interest (charge) subsisting on its assets — all assets must be free of encumbrances;
- all shareholders must become partners of the LLP (and only they);
- there must be no pending legal proceedings or outstanding dues; and
- the company's filings must be up to date, with consent from all shareholders and NOCs from secured creditors.
The process
1. Pass a board resolution approving conversion and authorising a designated partner. 2. Obtain DSC and DPIN/DIN for at least two designated partners. 3. Reserve the LLP name. 4. File FiLLiP (LLP incorporation) and Form 18 (the conversion application and statement) on the MCA portal. 5. On approval, the LLP is incorporated, the company is deemed dissolved, and all assets, liabilities, rights, and obligations vest automatically in the LLP by operation of law — no separate transfer deed or stamp duty. 6. Post-conversion: file the LLP Agreement in Form 3, intimate the change, continue the PAN, amend GST, and move onto the LLP filing calendar (Form 8 and Form 11).
Typically 30-45 working days.
The tax exemption — and its caps
This is where company→LLP shines: under Section 47(xiiib), the conversion is tax-neutral (no capital gains) — if specific conditions are met:
- all assets and liabilities of the company become those of the LLP;
- all shareholders become partners, with capital contribution and profit-sharing in the same proportion as their shareholding;
- no consideration other than the profit share and capital contribution;
- the former shareholders hold at least 50% of profit-sharing for five years; and — the caps that catch most companies —
- turnover/gross receipts ≤ ₹60 lakh in any of the three preceding years, and
- total assets in the books ≤ ₹5 crore in any of the three preceding years.
Breach any of these (including the 50%-for-5-years condition later), and the previously exempt capital gains become taxable in the year of non-compliance. So the tax-neutral route is really designed for small companies.
---
Part 2 — Converting an LLP into a Company
Legal basis
An LLP converts into a company under Section 366 of the Companies Act, 2013 (Chapter XXI, "Companies Authorised to Register Under This Act"), read with the Companies (Authorised to Register) Rules, 2014 — filed via Form URC-1 together with SPICe+.
The conditions
- a minimum of two partners (who become the company's members);
- unanimous consent of the partners;
- a certified statement of assets and liabilities, audited and recent;
- a newspaper advertisement (in English and a vernacular paper) inviting objections, with notice to the Registrar;
- NOCs from creditors; and
- up-to-date LLP filings.
The process
1. Obtain partner consent and prepare the documents. 2. Publish the newspaper advertisement inviting objections and notify the Registrar. 3. Reserve the company name. 4. File URC-1 with SPICe+ (MOA/AOA, statement of assets and liabilities, list of members and directors, NOCs). 5. The ROC issues the Certificate of Incorporation, and the LLP's assets and liabilities vest in the company by operation of law.
Typically 30-60 working days.
The tax difference — read this carefully
Here's the asymmetry that trips people up. Section 47(xiiib) exempts the transfer of assets in a company-to-LLP conversion — it does not apply to the reverse. There is no equivalent specific exemption for an LLP-to-company conversion. Depending on the assets involved, their book value, and the consideration, the reverse conversion may attract capital gains tax, and the position is less settled. Don't assume LLP→company is tax-free — take advice on your specific facts before converting.
---
Which way is right for you?
- Choose company → LLP if you're a small company (comfortably within the ₹60 lakh turnover and ₹5 crore asset caps), want to shed compliance and the dividend layer, and don't plan to raise equity — you'll also get tax neutrality.
- Choose LLP → company if you're scaling — you need external equity, VC funding, or ESOPs — accepting the heavier compliance and the less-favourable tax treatment as the price of a fundable structure.
Common mistakes to avoid
- A charge on the company's assets — it blocks a company→LLP conversion until satisfied.
- Exceeding the ₹60 lakh / ₹5 crore caps — you lose 47(xiiib) tax neutrality.
- Breaching the 50%-for-5-years condition later — it claws back the exemption.
- Assuming LLP→company is tax-free — there's no 47(xiiib) equivalent.
- Skipping post-conversion filings — Form 3 (LLP Agreement) and the new compliance calendar.
A note on changing rules
Conversion thresholds, forms, and tax provisions change over time. Treat this as a current-position guide and confirm the applicable conditions — especially the tax position — with a professional before converting.
Conclusion
Conversion between a company and an LLP is a genuine strategic tool, but the direction changes everything. Company → LLP (Section 56/57, via Form 18) is a clean, tax-neutral move for a small business — provided you stay within the ₹60 lakh turnover and ₹5 crore asset caps and keep the shareholders-to-partners conditions. LLP → company (Section 366, via URC-1 and SPICe+) opens the door to equity and ESOPs, but carries no matching tax exemption. Pick the direction that matches where your business is heading, and structure it carefully to get the conditions — and the tax — right.
---
FAQs
1. How do I convert a private company into an LLP? Under Section 56 and the Third Schedule of the LLP Act: pass board and shareholder resolutions, ensure no charges on assets, obtain creditor NOCs, and file FiLLiP with Form 18. On approval, the company is deemed dissolved and everything vests in the LLP.
2. Is converting a company to an LLP tax-free? It can be, under Section 47(xiiib) — but only if conditions are met, including turnover not exceeding ₹60 lakh and total assets not exceeding ₹5 crore in any of the three preceding years, all shareholders becoming partners in the same proportion, and holding 50% profit-sharing for five years.
3. How do I convert an LLP into a private limited company? Under Section 366 of the Companies Act, with at least two partners: obtain unanimous consent, publish a newspaper advertisement inviting objections, and file URC-1 with SPICe+. The ROC then issues a Certificate of Incorporation.
4. Is converting an LLP to a company tax-free? Not necessarily. Section 47(xiiib) applies only to company-to-LLP conversions; there is no equivalent exemption for LLP-to-company. The reverse conversion may attract capital gains depending on the facts, so take advice.
5. What are the main conditions to convert a company to an LLP? The company must be private or unlisted public, have no charges on its assets, no pending litigation or dues, up-to-date filings, and all shareholders must become partners of the LLP.
6. Why would a business convert from LLP to company? To raise equity or venture capital, issue ESOPs, and scale — things an LLP structure can't easily support. It's the common path for a growing startup, despite the heavier compliance.
---
Suggested Internal Links
- LLP Annual Compliance (Form 8 & 11) → `/llp-annual-compliance-form-8-11/` — anchor: "LLP compliance after conversion"
- CHG-1 (Charge Registration) → `/chg-1-charge-registration/` — anchor: "charges on your assets"
- First-Year Company Compliance → `/first-year-compliance/` — anchor: "company compliance after conversion"
- Company Strike-Off (STK-2) → `/company-strike-off-stk-2/` — anchor: "closing rather than converting"
- Company / LLP Conversion Service → `/services/entity-conversion/` — anchor: "convert your entity"
- Company Registration → `/services/private-limited-company-registration/` — anchor: "register a private limited company"
---
Suggested CTA
---
About the author
Regikart CA Team
Chartered Accountants at Regikart. Want to discuss this in the context of your business?
