Conversion of Entities

What is entity conversion?

Conversion changes the legal form a business operates in — a partnership firm becoming an LLP, an LLP becoming a company, or a private company becoming public — without closing it and starting again. The business carries on, with its assets, contracts, and history, in its new form.

Most conversions are statutory, under the Companies Act, 2013 or the LLP Act, 2008, and the old entity's property vests in the new one automatically. A proprietorship is the exception: it has no route to convert, so the business is transferred to a new company instead.

The conversion routes

Each type of conversion has its own law, forms, and conditions:

Partnership firm to LLP

A firm converts under the LLP Act by filing Form 17 with the LLP's incorporation. All the firm's partners, and no one else, become the LLP's partners.

Firm or LLP to company

A partnership firm or an LLP can register as a company under Part I of Chapter XXI of the Companies Act, filing URC-1 alongside the incorporation.

Private company to LLP

A private company, or an unlisted public company, converts under the LLP Act by filing Form 18. All its shareholders become partners, and the company is dissolved.

Private to public, and back

A private company becomes public by special resolution and amending its articles. Going the other way needs a special resolution and the Regional Director's approval.

Proprietorship to company

There's no direct legal conversion. A new company is incorporated and the proprietor transfers the business to it, usually under a business transfer agreement.

Vesting

In a statutory conversion, the old entity's assets, liabilities, contracts, and proceedings pass to the new one automatically, without separate transfers.

Tax neutrality

The Income-tax Act exempts conversions from capital gains tax only if strict conditions are met, such as owners keeping the same share and at least 50% for five years.

Why convert?

Businesses convert when their structure stops fitting what they're trying to do:

Limited liability

Moving from a partnership or proprietorship to an LLP or company protects the owners' personal assets from the business's debts.

Raising equity

Investors put money into companies, not LLPs or firms. Converting an LLP into a Private Limited Company is a common step before a funding round.

Lighter compliance

A small company that doesn't need equity funding may convert to an LLP for fewer filings and no mandatory audit below the thresholds.

Continuity

A statutory conversion keeps the business's history, contracts, and track record, unlike closing one entity and starting another.

Credibility and contracts

Larger clients, government tenders, and lenders often prefer, or require, a company or LLP over a firm or proprietorship.

Going public

A private company must convert to a public company before it can list, or raise money from the public.

Tax cost if done wrong

A conversion that misses the tax-neutrality conditions can trigger capital gains tax on the transfer of the business, so structure matters.

Who is this for?

• Partnership firms that want limited liability, as an LLP or a company
• LLPs preparing to raise equity funding that need to become a Private Limited Company
• Small private companies that want an LLP's lighter compliance
• Proprietors moving their business into a company
• Private companies preparing to list, and public companies going private

Converting isn't always the best answer. Sometimes incorporating a new entity and winding down the old one is simpler — for example, when only part of the business is moving. We'll compare both before you commit.

The conversion routes compared

Here's how the common routes differ:

What we'll need from you

Constitution documents

The partnership deed and firm registration, LLP agreement, or MoA and AoA of the existing entity.

Owners' consent

The consent of all partners or shareholders, as the route requires, and their KYC for the new entity.

Statement of assets and liabilities

A statement of the existing entity's assets and liabilities, certified by a Chartered Accountant.

Creditors and secured lenders

A list of creditors, and the consent of any secured creditors whose charges are still outstanding.

Up-to-date filings

For a company or LLP, pending ROC filings and income-tax returns brought up to date before conversion.

DSCs and DINs

Valid DSCs, and DINs for the people who'll be directors or designated partners of the new entity.

Government fees depend on the route and the new entity's capital or contribution. Where property is involved, stamp duty may also apply, depending on the state.

Converting a partnership firm into an LLP

One of the most common conversions, for firms that want limited liability. Here's how it runs:

1. 1

   Check eligibility and tax

   We confirm the firm qualifies and structure the conversion to meet the tax-neutrality conditions where possible.

2. 2

   Reserve the LLP name

   The LLP's name is reserved through RUN-LLP, usually the firm's name with "LLP" added.

3. 3

   Prepare the documents

   The partners' consents, a certified statement of the firm's assets and liabilities, and creditors' consents where needed.

4. 4

   File Form 17 with FiLLiP

   The LLP's incorporation form is filed together with Form 17, the application to convert the firm.

5. 5

   Registration and vesting

   The Registrar registers the LLP, and the firm's assets, liabilities, and contracts vest in it. The firm is treated as dissolved.

6. 6

   LLP agreement and registrations

   The LLP agreement is filed in Form 3 within 30 days, and the Registrar of Firms is informed of the conversion.

What happens after conversion?

The new entity takes over the business, but several registrations have to be set up or moved across:

New PAN and TAN

An LLP or company converted from another entity type gets its own PAN and TAN, since it's a different kind of taxpayer.

GST

Apply for a new GST registration on the new PAN, and transfer unused input tax credit from the old registration through ITC-02.

Bank accounts

Open accounts in the new entity's name, or have the bank update them with the conversion certificate, and move the balances.

Contracts and clients

In a statutory conversion, contracts vest automatically, but tell clients, vendors, and lenders so invoices and payments use the new name.

Property and licences

Update title records for property, and licences like Shops & Establishments, trade licences, FSSAI, and IEC.

Keep to the tax conditions

Where the conversion relied on tax neutrality, the conditions — like holding at least 50% — have to be kept for the full period that follows.

Benefits and responsibilities