Why Private Limited Companies are converting into LLP?
In Limited Liability Partnership or LLP under LLP Act 2008, where all or some of partners have limited liability as per the shares and offers them protection from misdeeds, negligence and incompetence of other partners. However, liability of partners is unlimited in case of fraud committed by LLP’s. The LLP Agreement regulates the conduct of business.
Section 56 of LLP Act 2008 provides that private companies can convert into LLP. Thus Companies are converting themselves into LLP’s because of:
- Tax benefits: by converting into LLP, company saves Dividend Distribution Tax, Minimum Alternative Tax and Income Tax because interest and remuneration is paid to partners as salary that is payable to directors.
Earlier there was no capital gains tax when existing entity converted into LLP but after amendment of 2016 a company having assets in excess of Rs 5 crore in any of three preceding years has to pay capital gains tax.
- Less Statutory Compliances: compared to statutory compliances of a private limited company as per Companies Act 2013 a LLP gets relief in the form of
- No requirement to maintain statutory record registers.