Limited Liability Partnerships (LLP) are emerging ever since the introduction of the Companies Act, 2013 as it is a form of business entity, which allows individual partners to be free from the concept of joint liability of partners in a partnership firm. LLP offers nearly all the benefits of a private limited company, with none of the downsides of a partnership firm. It offers limited liability, offers tax advantages, can accommodate an unlimited number of partners, and is credible in that it is registered with the Ministry of Corporate Affairs (MCA). At the same time, it has fewer compliances than a private limited company and is also significantly cheaper to start and maintain.
As a new business, you won’t have money to throw around. While legal should not be ignored (documentation, in particular, is an area that start-ups ignore). Forming a LLP is more advantageous form of organization over a company from compliances, tax and operational flexibility stand point. Therefore LLP may be more suitable for small entrepreneur and professionals particularly. The conversion from the existing corporate structure can be made to a LLP while retaining the advantages of Limited Liability and less compliances. So if you are startup or an entrepreneur, an LLP is much cheaper and viable to start and run.
Section 56 of the Limited liability Act, 2008 deals with the conversion from a private company into a limited liability partnership (or abbreviated as LLP). A private may be converted into an LLP in compliance with the provisions mentioned under Chapter X and the third schedule.
Eligibility for the conversion of private companies into LLP
There are certain conditions that must be fulfilled to be eligible for converting the private company into LLP (in accordance with the third schedule). These Conditions are as follows:
- There should be no security interest in its assets subsisting or in force at the time of making an application for such conversion; and
- The partners of the LLP to which it would convert should comprise all the company’s shareholders and no other individual.
Once, both the aforementioned eligibility conditions have been successfully met, it is very much clear and understood that the company, its shareholders, the LLP into which the company has converted and the partners of that LLP shall have to strictly comply with the provisions of the Schedule that will apply to them.
Statements to be filed
There are certain statements that are generally filled for converting a company into LLP. The statements in this regard must be filled with the registrar of the company (or abbreviated as ROC). A statement should be provided to the registrar from all shareholders in such form and manner as prescribed in the schedule and this should be accompanied by the fees as defined by the central government for such purpose. This statement should include the name and registration number of the company, and the date on which the company was incorporated. Along with this, an incorporation document and statement as specified in section 11 should also be furnished.
Registration of conversion
Once all the required documents are submitted to the registrar, he shall register the documents and issue a certificate of registration considering the provisions of the act and rules mentioned therein. He would issue the registration certificate in such form as he may determine to specify that the LLP is, on and from the date mentioned in the registration certificate stands registered under the LLP Act.
The registered LLP now shall inform the concerned ROC about such conversion within 15 days from the registration date. Further, the particulars of such registered LLP shall also be furnished in such form and manner as prescribed by the central government.
Registrar may refuse to register
If the Registrar does not find particulars or other information furnished in the application as appropriate or complete, he may wish to refuse to register such conversion. In that case, an appeal shall be made before the National Company Law Tribunal (or abbreviated as NCLT) in this regard by the Registrar.
Effect of registration
On and from the registration date specified in the registration certificate issued under paragraph 4–
- there shall be an LLP by the name mentioned in the registration certificate registered under the LLP Act;
- all tangible (movable as well immovable) and intangible property related to the company, all assets, interests, rights, privileges, liabilities, onuses concerning to the company and the whole of the company’s undertaking would be transferred to and conferred to the LLP without much further assurance, act or deed; and
- The company shall now be considered dissolved and will be removed from the ROC records.
Registration concerning property
If any property to which clause (b) of paragraph 6 applies is registered with any authority, the LLP, in that case, shall, as soon as operational, after the registration date, carry out all the required actions as made obligatory by the relevant authority for notifying the authority of such conversion and the particulars of the LLP in such form and manner as the authority may recommend.
All the legal proceedings by or against the company which is still pending before any Court, Tribunal or other authority as on the registration date will be executed, concluded and considered enforceable by or against the newly registered LLP.
Continuance of conviction, ruling, order or judgment
Any conviction, ruling, order or judgment of any jurisdiction (involving any Court, Tribunal or other authority) in favor of or against the company will also be considered enforceable by or against the LLP.
All the agreements to which the company was considered as a party immediately prior to the registration date, whether or not of such nature that the rights and liabilities thereunder could be assigned, shall have effect as from that date as if–
- the LLP was now considered as a party to such an agreement in place of the company; and
- For any reference to the company, there were substituted with reference to anything to be done on or post-registration date will now be a reference to the LLP.
All the existing contracts mainly involving deeds, contracts, bonds, agreements, instruments and arrangements subsisting immediately prior to the registration date concerning to the company or to which the company was being considered as a party will now continue to exist on and after that date as if they were in connection with the LLP and will also be considered enforceable by or against the LLP as if the LLP were named therein or were a party thereto in place of the company.
Continuance of employment
Every employment contract to which paragraph 10 or paragraph 11 is applicable will continue to exist on or after the registration date as if the LLP were the employer thereunder in place of the company.
Existing appointment, authority or power
- All the appointments that were made by the company in any role or capacity which was subsisting immediately prior to the registration date will have an effect and operate from that date as if the LLP were appointed that time in place of the company.
- Any authority or supremacy conferred on the company which is subsisting immediately prior to the registration date will have an effect and operate from that date as if it was conferred on the LLP in place of the company.
Application of paragraphs 6 to 13
The provisions as specified under paragraphs 6 to 13 (both inclusive) will be applicable to any approval, certification or permit issued to the company under any other Act which is subsisting immediately prior to the registration date of the LLP, conditional on the provisions of such other Act under which such approval, certification or permit is being issued.
Notice of conversion in correspondence
- The LLP must make certain that for a time-span of twelve months commencing not later than 14 days after the specified registration date, every official communication of the LLP bears the following:
- a statement specifying the fact that it was, as from the mentioned registration date, converted from a company into an LLP; and
- The name as well as the registration number of the company from which it was converted.
- Any LLP which is in contravention of the provisions of subparagraph (1) shall be liable to punishment and will carry a fine which would not be less than INR 10, 000 but which may extend to INR 100,000 and with a further fine which shall not be less than INR 50,000 but which may extend to INR 500 for every day after the first day after which the default continues.
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