What are benefits of conversion of company into LLP? also conversion of partnership into LLP?

Question

What are the advantages/disadvantages of a One person Company over an LLP? Which is a better option for a sole proprietor seeking to incorporate himself?

Answer 1

1. Benefits of Conversion of Private Limited 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. LLPs tax payment is lower than that of companies, which pay a 33.99% tax on profits. The tax will be imposed only on 40% of the LLP’s income, since the firm will be allowed to pay the balance 60% to the partners as remuneration. This means, the partners will have to pay tax on the amount paid to them. So, there will be no double taxation of income. 2. No Audit requirement Audit is not required unless capital exceeding Rs. 25 lakh or turnover exceeding Rs. 40 lakh. Unlike Companies, no requirement for payment of Corporation Tax on distribution of income among partners and there is no requirement as to Minimum Alternate Tax. 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. 6. Carry Forward and Set off 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.

2. 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. ******