LLP, the worldwide recognized form of business organization was introduced in India by way of Limited Liability Partnership Act, 2008 and LLP Rules, 2009. A limited liability partnership (LLP) is a partnership in which all partners have limited liabilities. LLP is an alternative corporate form of business organization which gives the benefits of limited liability of a company and the flexibility of a partnership. Its existence will continue irrespective of changes in partners and ownership. It is capable of entering into contracts and holding property in its own name. It is a separate legal entity, and is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. In an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence. In an LLP, mutual rights and duties of the partners within the LLP are governed by an agreement between partners or between the partners and the LLP as the case may be. However in the absence of such agreement the LLP would be governed by the framework provided in Schedule I of Limited Liability Partnership Act, 2008, which describes the matters relating to mutual rights and duties of partners of the LLP. Further any other form of business such as a partnership set up under the provisions of Indian Partnership Act, 1932, a private limited company and an unlisted public limited company can convert itself into LLP pursuant to the provisions of LLP Act, 2008 and by following the due procedure of law.
Conversion of LLP into Company
Sadly before the introduction of Companies Act, 2013 conversion of LLP into a Company was not allowed as both the LLP, 2008 and the Companies Act, 1956 were not containing any enable provision for such conversions. This was a major hurdle in the adoption of LLP as an organizational form. However, with the introduction of Companies Act, 2013 this issue has been addressed upto some extent. Section 366 of the Companies Act, 2013 provides that any partnership firm, limited liability partnership, cooperative society, society or any other business entity formed under any other law consisting of seven or more members, may at any time register under Companies Act, 2013 as an unlimited company, or as a company limited by shares, or as company limited by guarantee by following the procedure laid down in Companies (Authorized to Register) Rules, 2014. Provided that –
Procedure to be followed for Conversion of LLP Into Company
Before filing application for conversion, please ensure followings:
DIN & Digital Signature Certificate:
In case all seven members, who are proposed Directors of the Company after conversion, not holding any DIN then DIN and Digital Signature Certificate for all the proposed Directors of the Company must be obtained. For obtaining DIN an application in Form No. DIR – 3 should be filed on MCA Portal. DIN application is processed and approved by the Central Government through the office of Regional Director, Ministry of Corporate Affairs. Form No. DIR – 3 must be accompanied by self attested Identity Proof and Address Proof and one recent passport size color photograph of the Applicant. All the documents must be attested by a practicing professional viz. Practicing Cost & Management Accountant, practicing Company Secretary or practicing Chartered Accountant.
Name approval has to be obtained from the Registrar of Companies [“RoC”] by submitting an application in eForm INC 1. For this you need to decide various items, which are mentioned in Form INC 1. The name once approved by the authority is valid for 60 days. The Subscriber to the Memorandum and Articles of Association shall be the applicant for the availability of name application.
Preparation and Filing of Form No. URC – 1:
After obtaining name approval from the Registrar of Companies, applicant shall prepare and file the Form No. URC – 1 along with the following documents:
Memorandum & Articles of Association:
After obtaining name approval, and approval of Form No. URC – 1 from the Registrar, the draft Constitutional Documents of proposed Company i.e. Memorandum of Association (MOA) and Articles of Association (AOA) is to be drafted and then filed with the RoC along with the forms / documents stated below.
Subscription Pages of MOA & AOA – The last page of the MOA and AOA must contain details of the subscribers to the Memorandum and Articles and the number of shares to be subscribed by each. This last page is required to be executed by subscribers.
Filing of Incorporation Forms:
The following forms are required to be filed with the RoC:
Clarifications/Additional Information Required By RoC:
After all the incorporation papers are filed and reviewed by the RoC, the RoC may require certain clarifications. These clarifications or enquiry need to be satisfied by the person who has been authorised to do so by the Power of Attorney filed with the RoC.
Certificate of Incorporation:
Once all clarifications are provided, the Certificate of Incorporation is issued by the RoC and the company is deemed to be incorporated from the date of the Certificate of Incorporation.
After obtaining the registration under Section 367 of the Companies Act, 2013, intimation to this effect shall be given, within fifteen days of such registration to the concerned Registrar (LLP) under which it was originally registered, along with necessary documents or papers for its dissolution as Limited Liability Partnership.
Section 366 of the Companies Act, 2013 has provided existing LLPs an option to convert themselves in a Company, which is a welcome move by the Ministry of Corporate Affairs. However certain provisions such as requirement of having minimum seven or more members is restricting LLPs with less partners from conversion. And any LLP having less number of partners willing to convert itself into Company must increase its number of partners, which is something small entrepreneurs are not comfortable with. Hence requirement of minimum 7 members is major hurdle in conversion into Company form of business. Government must come up with amendment in rules to allow LLPs with 2 partners for conversion into Company.
(Author- Shubham Gupta- Tax Consultant & Advocate can be reached at firstname.lastname@example.org)