Convert a Private Limited Company into an LLP — Process, and the Tax-Free Test under Section 70(1)(ze)
Quick answer: A private or unlisted public company converts into an LLP under Sections 56/57 of the LLP Act by filing Form 18 with FiLLiP, with every shareholder becoming a partner and creditor consents on file. The conversion is not a 'transfer' for capital gains only if the conditions in Section 70(1)(ze) of the Income-tax Act 2025 (the successor to s.47(xiiib)) are met: total sales or turnover not above ₹60 lakh and total assets not above ₹5 crore in any of the three preceding tax years, shareholders keeping at least 50% of profits for five years, and no payout of accumulated profit to partners for three years; breach triggers the Section 71 clawback. Almost every page online still cites s.47 — that Act stopped applying on 1 April 2026.
Last verified 4 October 2026 — rules on this page checked against the current notifications. We update it the day a rule changes.
The new section numbers (Income-tax Act 2025, s.70(1))
| Conversion | 1961 Act | 2025 Act | Key conditions |
|---|---|---|---|
| Private / unlisted public company → LLP (LLP Act s.56/57, Form 18) | 47(xiiib) | s.70(1)(ze) | Turnover ≤ ₹60 lakh and total assets ≤ ₹5 crore in each of the 3 preceding tax years; all shareholders become partners in the same proportion; no consideration other than profit share and capital; shareholders hold ≥ 50% of profits for 5 years; no accumulated-profit payout for 3 years |
| Partnership firm → company (Companies Act s.366, URC-1) | 47(xiii) | s.70(1)(zd) | All assets and liabilities pass; partners become shareholders in capital-account proportion; no other consideration; partners hold ≥ 50% voting power for 5 years |
| Sole proprietorship → company (succession by business transfer) | 47(xiv) | s.70(1)(zf) | All assets and liabilities pass; proprietor holds ≥ 50% voting power for 5 years; consideration only in shares |
| Clawback if conditions later fail | 47A | s.71 (withdrawal of exemption) | The exempted gain becomes taxable in the year of breach |
| Partnership firm → LLP (LLP Act s.55, Form 17 + FiLLiP) | — | — | Generally no capital-gains event where partners and their shares stay the same; GST and PAN change in practice |
Process — company to LLP
- Board and shareholder approval; every shareholder to become a partner; secured-creditor consents; no pending prosecution or unfiled annual returns
- RUN-LLP name (₹200), DPIN/DSC for designated partners
- Form 18 (conversion) with FiLLiP, statement of assets and liabilities certified by a CA, latest ITR, list of creditors with consents, incorporation documents
- Certificate of registration of the LLP; intimation to the ROC of the company within 15 days; LLP Agreement in Form 3 with state stamp duty
- Post-conversion: fresh GSTIN and PAN, bank, licences and contracts re-papered; 3–6 weeks end to end
What we do
- s.70(1)(ze) eligibility test on three years' accounts before you start — the ₹60 lakh / ₹5 crore limits disqualify many operating companies, in which case we model the taxable route
- Forms 17/18/URC-1/INC-6 filings, creditor consents, the LLP Agreement and stamping; post-conversion GST/PAN/bank migration
- Related: Pvt Ltd vs LLP vs OPC, MCA event filings, section finder
Figures are quoted from the issuing authority's own notification or portal; anything not yet confirmed on an official page is marked and checked at filing, never estimated.
Talk to us before you file anything
Frequently asked questions
Is converting a private limited company into an LLP tax-free?
Only if Section 70(1)(ze) of the Income-tax Act 2025 is satisfied — turnover not above ₹60 lakh and total assets not above ₹5 crore in each of the three preceding tax years, all shareholders becoming partners, at least 50% profit share retained for five years and no accumulated-profit payout for three years.
What replaced Section 47(xiiib)?
Section 70(1)(ze) of the Income-tax Act 2025 for income from 1 April 2026; the clawback in old s.47A is now Section 71.
Which form converts a company into an LLP?
Form 18 (with FiLLiP) under Sections 56/57 of the LLP Act; a partnership firm uses Form 17; a firm or LLP becoming a company uses URC-1.
Can a proprietorship be converted into a company?
Not by a statutory form — the company succeeds to the business by transfer; it is tax-neutral under s.70(1)(zf) if the proprietor holds at least 50% voting power for five years and takes consideration only in shares.
Do we need creditor consent?
Yes — consents of secured creditors are filed with Form 18; unsecured creditors are listed.
Do GST and PAN carry over?
No — the LLP takes a new PAN and GSTIN; input credit transfers through the prescribed GST route.
What happens if the conditions are breached later?
The exempted gain is taxed in the year of breach under Section 71 (ex-47A) — for example if a partner's profit share falls below 50% within five years.
How long does a conversion take?
Typically 3–6 weeks including name, filings and the LLP Agreement; bank and licence migration follows.