Convert LLP to Private Limited Company: Process and Tax

Many founders start as an LLP because it is quick, cheap to run and familiar from family business. The problem shows up at the first serious fundraise: investors want preference shares, ESOPs and a board that only a company can offer. The answer is not to shut the LLP and start again. Indian company law lets an LLP register itself as a private limited company and keep its identity, assets and history.

This note walks through the route under section 366 of the Companies Act, 2013, the conditions that keep the conversion tax-neutral, the stamp duty and GST points people miss, and how to time it around a raise. Every time limit and rate below can change, because forms and procedures change.

Why founders convert an LLP

An LLP suits a services business with a few partners and no outside capital. It stops fitting when you want institutional equity, because the tools a venture investor uses are company tools.

An LLP can accept foreign investment in sectors where full foreign investment is allowed under the automatic route without performance conditions, and it can hold DPIIT recognition. But it cannot offer the instruments and option plans a priced round expects, which is why conversion usually comes a few months before the first institutional money.

• Compulsorily convertible preference shares (CCPS) and debentures are company instruments
• An employee stock option plan under the Companies Act needs a company
• Term sheets, subscription agreements and shareholders agreements assume share capital and a board
• An IPO issuer must be a company, so an LLP cannot list

The legal route: section 366, not the LLP Act

The LLP Act, 2008 lets a firm or a company become an LLP, not the other way round. LLP to company runs through section 366 of the Companies Act, 2013, in Part I of Chapter XXI, read with the Companies (Authorised to Register) Rules, 2014. The LLP registers itself as a company. It does not dissolve and hand over its business; the same entity continues in a new legal form.

That continuity is written into the Act. Section 367 provides for the certificate of registration, and sections 368 to 370 vest the LLP's property in the company, preserve its existing liabilities and let pending legal proceedings continue. This is what makes conversion cleaner than selling the business to a new company, which would usually be a taxable transfer.

The process, step by step

The steps below assume a clean LLP with audited, current accounts. Most of the waiting comes from the newspaper notice window, name approval and MCA processing.

Expect about 4 to 8 weeks from start to certificate if the accounts are clean and no creditor objects.

• Check eligibility: at least two members for a private company and partner consent
• Reserve a name ending in Private Limited through RUN or SPICe+ Part A
• Clean up partner capital and current accounts so shares can be allotted exactly in proportion to capital
• Pass the partners' resolution approving conversion and the new MoA and AoA, amending the LLP agreement first if it is silent
• Publish the notice in Form URC-2 in an English and a local-language newspaper inviting objections, and file only within the window it allows
• Collect creditor consents and a statement of assets and liabilities certified by the auditor, not older than 30 days
• File Form URC-1 with SPICe+ Part B and the linked forms, then receive the certificate of incorporation

Keeping the conversion tax-neutral

Conversion moves every asset from the LLP to the company, and without an exemption that could be a taxable transfer. Under the Income-tax Act, 1961, a firm includes an LLP, and section 47(xiii) exempts a firm succeeded by a company if these conditions are met:

Break a condition within that period, for example by letting a funding round take the former partners below the limit, and the exemption is withdrawn: the gain is taxed in the company's hands in the year of the breach under section 47A(3). The same conditions decide whether the LLP's accumulated losses carry forward into the company.

Two cautions. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 and renumbers these sections, so check the current provision. And while the exemption is widely relied on for LLP to company conversions, take a written tax opinion on your facts before you file.

• All assets and liabilities of the LLP become assets and liabilities of the company
• All partners become shareholders in the same proportion as their capital accounts on the date of conversion
• Partners receive no consideration other than shares, directly or indirectly
• The former partners together hold at least 50 percent of the voting power and keep it for five years

Stamp duty, GST and housekeeping after conversion

Stamp duty is a state subject. Some states give relief on conversion because the entity continues and nothing is sold; others treat the vesting of immovable property as a conveyance and charge duty on market value. Check your state's current position before filing, and budget the worst case if the LLP owns property. Stamp duty on the issue of shares also applies.

For GST, a change in constitution that brings a new PAN usually needs a fresh registration, and unused input tax credit can be moved across through Form GST ITC-02. The rest of the list is long but routine.

• New PAN and TAN for the company, and updated bank accounts and mandates
• Notices to lenders, customers and vendors, and novation of contracts that need consent
• Transfer of licences and registrations such as IEC, shops and establishment, PF and ESIC
• Closing the LLP's records with the Registrar as the rules require
• First board meeting, auditor appointment and statutory registers for the company

Timing the conversion around a fundraise

Convert before the term sheet, not after. An investor's lawyers will not draft a subscription agreement for an entity that is mid-conversion, and the housekeeping, especially bank accounts and GST, takes longer than the certificate itself.

Plan the round with the five-year shareholding condition in mind. If the first raise, the ESOP pool and a later round together could take the former partners below the limit, model it before you convert. Founders often still hold a majority after a seed round, but check your own numbers rather than assume.

Frequently asked questions

Can an LLP raise venture capital in India?

It can take capital contributions, including foreign investment in eligible sectors under the automatic route. But most venture investors use instruments such as CCPS that only a company can issue, and an LLP cannot run a Companies Act ESOP, so founders usually convert before a priced round.

How long does LLP to private limited conversion take?

About 4 to 8 weeks to the certificate, driven by the newspaper notice window, name approval and MCA processing. Bank, GST and contract updates after that take extra time, so start early.

Is there capital gains tax on converting an LLP into a company?

Not if the section 47(xiii) conditions are met and kept for five years. A breach withdraws the exemption and the gain is taxed in the company. Because the stakes are high, take a written tax opinion before filing.

Does the company keep the LLP's contracts and history?

Yes in law: property, rights and liabilities vest in the company and pending proceedings continue. In practice, banks, customers, lenders and regulators still need notice, and some contracts need consent or novation.

Related guides

• LLP vs private limited company
• Private limited incorporation in India
• Startup fundraising in India
• Startup and fundraising advisory services