Stamp Duty on conversion of a Private Company into LLP

Section 58(4) of the LLP Act, 2008, provides that notwithstanding anything contained in any other law for the time being in force, on and from the date of registration specified in the certificate of registration issued under the Third Schedule—

(a) there shall be a limited liability partnership by the name specified in the certificate of registration registered under this Act;

(b) all tangible (movable or immovable) and intangible property vested in the firm or the company, as the case may be, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, as the case may be, and the whole of the undertaking of the firm or the company, as the case may be, shall be transferred to and shall vest in the limited liability partnership without further assurance, act or deed; and

(c) the firm or the company, as the case may be, shall be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be.

Clause 6 of the Third Schedule provides that, on and from the date of registration specified in the certificate of registration—

(a) there shall be a limited liability partnership by the name specified in the certificate of registration registered under this Act;

(b) all tangible (movable or immovable) and intangible property vested in the company, all assets, interests, rights, privileges, liabilities, obligations relating to the company and the whole of the undertaking of the company shall be transferred to and shall vest in the limited liability partnership without further assurance, act or deed; and

(c) the company shall be deemed to be dissolved and removed from the records of the Registrar of Companies.

Clause 7 of the Third Schedule provides that if any property to which sub-paragraph (b) of paragraph 7 applies is registered with any authority, the limited liability partnership shall as soon as practicable, after the date of registration, take all necessary steps as required by the relevant authority to notify the authority of the conversion and of all the particulars of the limited liability partnership in such medium and form as the authority may specify”.

Thus, as per the Act itself, what is required under the Act on conversion of firm or Company into an LLP is that if any property is registered with any authority, the limited liability partnership shall as soon as practicable, after the date of registration, take all necessary steps as required by the relevant authority to notify the authority of the conversion and of all the particulars of the limited liability partnership in such medium and form as the authority may specify.

As per section 58 of the Act immovable properties vest in and stand transferred to the LLP without any further assurance, act or deed. Thus, the law deals with legal vesting where under, in the strict sense of the term, no Stamp Duty is payable for a legal vesting. It is automatic and by force of operation of law. This is akin to the legal vesting of property recognised under section 575 of the Companies Act, 1956 under Part – IX relating to and dealing with conversion of a Partnership into a Company, generally known as Part IX Companies [corresponding Section 368 in the Companies Act, 2013]. The following citation requires a worth mention in regard to the subject matter:

“The effect of the section is that there is an automatic vesting and divesting. The old company is divested of the properties and the new companyis vested with the properties. The vesting being statutory, no registered instrument of transfer is necessary. See Rama Sundari Rayv. Syamendra Lal Ray, ILR (1947) 2 Cal 1. This was followed by the A.P. High Court in Vali Pattabhirama Rao v. Sri Ramanuja Ginning & Rice Factory (P.) Ltd. [1986] 60 Comp. Cas. 568 (DB) (AP) where it was observed: ‘Thus, we hold that if the constitution of the partnership firm is changed into that of a company by registering it under Part IX of the present Act, there shall be statutory vesting of title of all the property of the previous firm in the newly incorporated company without any need for a separate conveyance.’ (Page 580. A permanent lease of land was taken by a person specifically for the purpose of constructing and running a rice mill and a ginning factory. He formed a partnership for the purpose which carried on the business and ultimately the firm registered itself as a company. 

The position would be different where the company incorporated had come into existence even while the firm existed and a separate agreement of transfer was entered into between the directors of the company and partners of the firm. [Steward & Co. Ltd. v. C. Machertech AIR 1963 Cal. 198 (DB)].”

It is worthwhile to infer from the above statutory provisions that the property of the private company automatically vests into LLP and no conveyance deed is required for the execution of such a transfer. Such a conversion is even without consideration and is more of a restructuring exercise whereby the ultimate beneficiaries remain (majorly) the same even after conversion.

LLP – whether a Body Corporate:

The term “body corporate” is wider than the expression “company” and is used in several sections of the Act to denote not only a company incorporated in India but also a foreign company. It includes a corporation formed under any special law of India or a foreign country, except as expressly excluded by the definition. It includes all public financial institutions mentioned in section 4A of the Companies Act, 1956 [Section 2(72) of the Companies Act, 2013] as well as nationalized banks incorporated under section 3(4) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. However, it excludes a body corporate, which is not a company under the Act and which is specified by the Central Government in the notification in the Official Gazette. [Vibank Housing Finance Ltd., In re (2006) 130 Comp Cas 705 (Karn)]

The above article is contributed by CA Kamal Garg having professional and academic interests in IFRS, Accounts, Auditing and Corporate Laws arenas. He can be approached at cakamalgarg@gmail.com

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