In Morocco, converting an LLC to a PLC is an operation that can only be decided by the company’s partners. Indeed, the partners of a Limited Liability Company can decide to transform it into another form, in particular into a Public Limited Company.
In practice, the conversion consists of an amendment to the articles of association. Moreover, the conversion of the legal form does not lead to the creation of a new legal person.
Indeed, according to article 2 of the law 05-96: “The regular conversion of the company to a company of another form does not involve the creation of a new legal person”.
Converting an LLC to PLC : why ?
As we mentioned in our previous article, the LLC remains the investors’ preferred company form in Morocco. This is due to several factors (see the article for more details).
LLC partners can convert their company into a public limited company either willingly, or due to legal requirements. For example, it is important to know that the number partners of an LLC in Morocco cannot exceed 50. Therefore, if the number of partners goes beyond this threshold, it is necessary to proceed with the conversion of the LLC into a PLC. In this case, the law grants the partners a 2-year period. If the conversion has not been performed within this deadline, the company is dissolved.
Moreover, the LLC does not have the right to make a public offering. As a result, it may be necessary to convert the LLC into a PLC before:
- an IPO (Initial Public Offering)
- Issuing bonds
Before proceeding with the conversion of your company, contact Upsilon Consulting to fully oversee this procedure.
Converting an LLC into a PLC : Legal implications
Converting an LLC into a PLC requires some formal and substantive conditions.
The company can only be converted following a partners’ general meeting. This general meeting must meet the quorum conditions for the amendment of the Articles Of Association (AoA). The meeting must rule, by the majority vote required to amend the AoA of an LLC, in favor of the conversion of the company into a PLC.
Formalities for the conversion of an LLC into a PLC:
- Changing the company’s name assignment to “S.A.” (S.A. is P.L.C. in French)
- Registration of the minutes of the general meeting deciding the company conversion
- Drafting and registration of new articles of association that comply with the requirements of a PLC
- Appointment of a board of directors (or, of a management board and a supervisory board, in a dual form PLC)
- Filing documents at the court registry
- Appointing a statutory auditor, if not yet done
- Drafting, registering and filing with the court registry of a declaration of compliance
Furthermore, to comply with the provisions of article 36 of the law on public limited companies, the partners must unanimously appoint a “commissaire à la transformation”, who is an independent auditor who oversees the conversion process. In the rest of this article, we will refer to “commissaire à la transformation” as conversion auditor.
Upsilon Consulting can act as your “commissaire à la transformation”. Call us.
Mission of a “commissaire à la transformation”
According to the provisions of the aforementioned article 36 :
The conversion auditor’s report must certify that the net equity of the converted company is at least equal to its share capital.
Please note that the conversion auditor’s report must be joined with the rest of the documents to be filed with the court registry.
Also, the law requires the publication of a notice of transformation in the official bulletin and in the legal announcement journal. The publication of an extract of the articles of association is done immediately after the filing at the court clerk.
Under the provisions of the Moroccan law, the managers of an LLC must rule for the conversion into a Public Limited Company. Then, they must proceed with the convocation of the partners’ General Meeting. The decision to change the legal form can only be made by the partners representing at least three quarters of the share capital.
This meeting decides to issue new shares in exchange of the old ones.
These shares can be issued as soon as the operation is definitive, i.e. once the amending declaration to the trade register is completed.
Note that once a company is converted into a PLC, several requirements become mandatory:
- Appointment of conversion auditor
- Amendment of company’s AoA to be compliant with a PLC’s Article of Association, namely:
- Share capital
- Number of shareholders
- Management bodies (board of directors)
What are the implications of converting an LLC into a PLC?
The transformation of an LLC into a PLC has legal (1) and tax (2) implications.
Shareholders of the converted company benefit from their rights since the ruling of the conversion.
In addition, since the legal personality of the company is maintained, the company’s business continues. Obligations towards third parties continue in the new form. There are no new obligations towards third parties.
Thus, an agreement previously concluded by the LLC continues to produce its effects. Therefore, previous commitments remain enforceable against the PLC. Examples: employment contracts, leases,…
Assets of the converted LLC belong to the PLC. The same applies to liabilities.
Furthermore, when the decision to convert occurs during the fiscal year, it is not necessary to end the fiscal year on the date of conversion.
The conversion of a limited liability company into a public limited company does not entail the creation of a new taxable entity or a change in tax status.
Moreover, both, the LLC and the PLC, are under the same tax regime of Corporate Income Tax and Value Added Tax. Thus, nothing changes for the other taxes.
For example, input and output VAT before conversion continue to be charged and recoverable under the same conditions.