Capital Redemption Reserve in case of Conversion of Private limited into LLP

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Gaurav Kotwani (Querist)
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03 May 2024 A Private Limited Company have Capital redemption Reserve in their Liabilities, in case of that Company do get converted into LLP. now in balancesheet capital redemption reserve will be shown as what.

Note:we do not want to issue bonus share from Capital redemption reserve and do not want to use it in any other way,

let us know the way of treatment of capital redemption reserve in case of conversion of company conversion to LLP.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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06 July 2024 When a Private Limited Company converts into a Limited Liability Partnership (LLP), the treatment of the Capital Redemption Reserve (CRR) in the balance sheet depends on the rules governing LLPs and the specific provisions applicable in your jurisdiction. Here's how it generally works:

1. **Nature of Capital Redemption Reserve (CRR):** CRR is typically created when a company buys back its own shares out of its profits or from the proceeds of a fresh issue of shares. It cannot be used for issuing bonus shares or for distribution as dividends.

2. **Conversion to LLP:** When the Private Limited Company converts into an LLP, the CRR remains part of the company's accumulated profits and reserves. According to the Companies Act (or similar legislation applicable in your country), CRR is a specific reserve category.

3. **Reporting in LLP Balance Sheet:** In the LLP's balance sheet after conversion:
- The CRR will be shown as a reserve under the equity section.
- It should be clearly labeled as "Capital Redemption Reserve" to reflect its nature and origin.

4. **Usage Restrictions:** Since you mentioned that you do not intend to issue bonus shares or use the CRR in any other way, it will remain as a reserve held by the LLP. LLPs generally have flexibility in managing their reserves, but ensure compliance with local regulations regarding the use and disclosure of reserves.

5. **Accounting Treatment:** The CRR should be transferred to the LLP's books during the conversion process, ensuring that the balance sheet reflects all reserves accurately.

It's advisable to consult with a professional accountant or a legal advisor familiar with corporate conversions and LLP regulations in your jurisdiction for precise guidance tailored to your specific situation and local laws.