Initially, people tend to form a partnership firm as it can be easily formed with minimum compliances and cost. Then, when the business grows or any dispute arises between the partners, they generally intend to convert their existing partnership firms into a Limited Liability Partnership (LLP) in order to formalise the business. The same trend has been increased recently rapidly for a number of reasons mentioned such as:
i. No limit to number of partners.
ii. The liability of partners is limited to the amount of capital contributed.
(This is the major benefit of a Limited Liability Partnership when compared to a partnership firm)
iii. The LLP is a body corporate, a more formalized business structure & has a perpetual succession.
iv. The LLPs enjoys a higher creditworthiness compared to partnerships as its accounts and affairs are open for public inspection for general public on MCA portal.
v. It offers complete flexibility in managing the business.
vi. Foreign Direct Investment (FDI) in LLPs is easily allowed which is not the case in partnerships.
vii. The LLPs can opt for various Start up India Schemes offered by the government and take taxation, rebate, etc. benefits.
viii. The Rule of Agency principle is not applicable on LLP such that the partners are not liable for the act of other partners which makes LLP to be a safer option of operating the business activities.
REGULATORY FRAMEWORK FOR CONVERSION OF FIRM INTO LLP:-
i. Section 55 of the LLP Act, 2008 read with Rule 38 of LLP Rules, 2009
ii. Schedule 2 of LLP Act, 2008
ELIGIBILITY FOR CONVERSION: –
An existing partnership firm may apply to convert into a limited liability partnership if and only if the partners of the limited liability partnership into which the firm is to be converted, comprise, all the partners of the firm and no one else.
OTHER IMPORTANT POINTS TO BE KEPT INTO MIND BEFORE APPLICATION:
i. There should be consent in writing of all the Partners for conversion.
ii. Every partner should contribute to the LLP in the same proportion in which their capital accounts stood in the books of the firm.
iii. The partnership firm shall file up to the date Income Tax Returns;
iv. There shall be at least 1 designated partner Resident in India.
v. The consent of all the secured creditors shall be obtained before applying for conversion.
vi. The Digital Signature of at least one of the Designated Partners is required to be obtained.
vii. The prior approval or NOC, if any required shall be obtained by the requisite department.
PROCEDURE FOR CONVERSION OF PARTNERSHIP FIRM INTO LLP
STEP 1: – Reservation of Name
File web-based form RUN LLP for reservation of name of the proposed LLP. In addition to the name of the partnership firm, the words LLP or Limited Liability Partnership at the end should be there. The approved name is valid of 90 days from the date of such approval.
STEP 2:- Filing of Incorporation Form i.e. eForm FILLIP
After approval of name of the proposed LLP, the eForm FILLIP is required to be filed along with the following attachments: –
- Utility Bill (not older than two months) of the registered office along with the NOC
- Signed Subscribers Sheet
- Consent of all the partners
- Proof of identity and address of all the subscribers
- Copy of NOC of existing partnership
- Details of LLP/Company in which partners/DP is a Director/Partner
STEP-4:- Filing of eForm 17
The application for conversion is required to be filed by the partners in eForm 17 along with the following attachments: –
- Statement of Assets & Liabilities of the firm duly certified by a CA in Practice;
- List of Creditors along with their consent for conversion;
- Consent of all partners for conversion;
- Approval from any other body/authority as may be required;
- Statement of Partners in the format as mentioned in the Schedule II;
- Copy of Acknowledge of Latest Income Tax Return;
- Existing Partnership Deed;
- Registration Certificate of Partnership Firm issued by Registrar of Firms, if any.
STEP-5:- Approval/Sent for Re-submission Refusal by the Registrar:-
On approval, the Registrar shall issue a Certificate of Incorporation. However, in case of rejection, an appeal may be made before the Tribunal in case of refusal of registration by the Registrar.
STEP-6:- Intimation to the Registrar of Firms
The LLP shall within 15 (Fifteen) days from the date of conversion intimate about such conversion to the registrar of firms in Form-14 along with following attachments:
i. Copy of Certificate of Incorporation of LLP;
ii. Copy of Incorporation documents submitted.
It is to be noted that Form 14 is a physical form that needs to be filed by duly filing this manually, signed and submitting it to the Registrar of Firms.
STEP-7:- Filing of form LLP-3 (LLP Agreement):-
The last step is to file eForm LLP 3 with the Registrar within 30 days from the date of conversion of Firm into LLP i.e., issuance of certificate of incorporation with the LLP Agreement as attachment.
Once, the LLP is incorporated after Partnership Firm is converted, the Partnership Firm would be deemed to be dissolved. Further, on the conversion of Partnership into LLP, all properties, assets, interests, rights, privileges, liabilities, obligations of the firm are transferred to the LLP. In other words, the whole of the undertaking of the firm is transferred to the LLP.
POST CONVERSION IMPORTANT POINTS:
1. Till a period of twelve months commencing not later than 14 days after the date of registration, every official correspondence should bear the following:
2. A statement that it was converted into an LLP;
3. The name and the registration number, if applicable, of the partnership firm;
4. All proceedings by or against the firm which are pending with any Court, Tribunal or any authority may be continued, completed and enforced by or against the LLP.
5. All existing agreements and contracts shall be valid such that it was entered into with the converted LLP or such LLP was a party to the said agreement and contract.
FREQUENTLY ASKED QUESTIONS (FAQs)
1. Can only registered Partnership Firms be converted into LLP?
No, registered as well as unregistered Partnership Firms can be converted into LLP.
2. Is the consent of only secured creditors required?
Yes, as per the language of the law. The law is not anywhere asking for NOCs from unsecured creditors.
3. Can we transfer only assets and not liabilities into the new LLP?
No, it is not possible. The entire partnership entity along with assets, liabilities, interests, rights, privileges, obligations is required to be transferred into the LLP.
4. Will the partners of the partnership firm continue to be liable for the act done before such conversion?
Yes, the partners shall continue to be personally liable for all the acts done.
5. In case any property is held by the partnership firm before conversion, will the partnership firm required to be transferred the property in LLPs name?
It is explicitly written in the Act that the LLP shall take all necessary as required by the necessary authority to notify the authority about such conversion and all assets of the partnership firm shall vests into the LLP without any further acts, deed or assurance.
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(The author i.e., Kajal Goyal is a Company Secretary in Practice at M/s. Kajal Goyal and Associates and can be reached at (M) +91-9999952595 and (E) cskajalgoyal@gmail.com)
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