Summary: The conversion of a partnership firm into a Limited Liability Partnership (LLP) is governed by the LLP Act, 2008, under Sections 55 and 58, Chapter X and XV rules, and the Second Schedule. Eligible firms, whether registered or unregistered, can convert if the LLP has the same partners as the firm. The process begins with reserving the LLP’s name via the RUN-LLP form, followed by filing forms like FiLLiP, E-Form 9, and E-Form 17. Required documents include financial statements, a CA certificate, the latest income tax return, and partner consents. Upon approval, the Registrar of Companies (ROC) issues a certificate of incorporation, marking the firm’s dissolution and transferring its assets, liabilities, and contracts to the LLP. Post-conversion, compliance includes filing Form 14 to notify the registrar and Form 3 for the LLP agreement. Tax implications are neutral as the Income Tax Act treats partnerships and LLPs similarly. This streamlined process simplifies operations and offers enhanced liability protection under the LLP framework. For professional assistance, contact Nishant Mishra and Associates.
In this article, I will explore the provisions related to converting a partnership into a Limited Liability Partnership (LLP). Drawing from recent experience in successfully converting a partnership into an LLP, this write-up provides both theoretical insights and practical guidance on the conversion process.
The conversion of a partnership into an LLP is governed by:
- The LLP Act, 2008, specifically Sections 55 and 58,
- Rules under Chapter X (Rules 32 and 33),
- Rules under Chapter XV (Rule 38), and
- The Second Schedule, which details eligibility for conversion.
Additionally, the process involves filing specific documents, the registrar’s power to approve or reject the conversion, and considerations regarding the effects and compliance requirements post-conversion. These aspects, along with the necessary forms, are discussed in detail in this article.
What is firm?
Section 55, read with the Second Schedule of the LLP Act, defines a “firm.” According to Schedule II, a “firm” refers to an entity as defined under Section 4 of the Indian Partnership Act, 1932.
Section 4 of the Indian Partnership Act defines:
- Partnership: A relationship between persons who agree to share the profits of a business carried on by all or any of them acting for all.
- Partners: Individuals who have entered into a partnership.
- Firm: The collective entity of partners.
- Firm Name: The name under which the business is conducted.
Both registered and unregistered firms can convert into LLPs.
What is Conversion?
Section 55, along with Schedule II, explains that “conversion” refers to the transfer of a firm’s property, assets, interests, rights, privileges, liabilities, obligations, and undertakings to an LLP in accordance with this Schedule.
ELIGIBILITY AND PROCEDURE
All partnership firms, whether registered or unregistered, are eligible for conversion to an LLP, provided the partners of the LLP are the same as those in the partnership and no new partners are added.
The Procedure for the conversion of firm LLP starts with the reservation of name for the LLP. After name reservation we need to file required forms.
Step 1: Reservation of Name
The process begins with reserving the LLP’s name by filing the Run-LLP form along with the following attachments:
1. Approval from all partners consenting to the conversion.
2. KYC documents of the partners.
3. Partnership agreement.
Once submitted, and subject to name availability, the registrar issues a name approval letter valid for 90 days. Although proceeding without name reservation is possible, reserving the name simplifies the process.
Step 2: Filing Conversion Forms
After reserving the name, the following forms must be filed:
1. FiLLiP: This form captures details such as the LLP’s name, address, contact details, activities, and designated partners. It also requires supporting documents like the subscriber’s sheet, NOC for premises, and consent of promoters.
2. E-Form 9: Pre-filled with designated partners’ details if they hold DIN.
3. E-Form 17 (Part-A): This form includes details like total assets, revenue, and specific attachments:
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- Financial statements certified by a CA (not older than 30 days).
- CA certificate.
- Latest income tax return.
- NOC from creditors (if applicable).
- Original partnership deed, partner KYC, and partner resolution.
REGISTRATION OF CONVERSION
On receiving the above document, the ROC shall scrutinize it and if everything found in order than they shall approve it and issue fresh certificate of incorporation in From 19.
If register refuges to register such conversion the applicant may apply to tribunal within 60 days from receipt of such order or refusal.
EFFECT OF REGISTRATION
Once the certificate is issued:
1. The LLP comes into existence.
2. All assets and liabilities of the firm automatically vest in the LLP.
3. The firm is deemed dissolved.
4. Ongoing legal proceedings are continued under the LLP’s name.
5. Existing contracts, agreements, and employment relationships transfer to the LLP.
6. Approvals, permits, and licenses of the firm become those of the LLP.
POST CONVERSION COMPLIANCE
1. Form 14: Intimation of conversion to the registrar within 15 days.
2. Form 3: Filing of the new LLP agreement within 30 days.
All official correspondence of the LLP must state:
- That it has been converted from a firm to an LLP as of the registration date.
- The firm’s name and registration number (if previously registered).
CONVERSION UNDER INCOME TAX
The Income Tax Act does not distinguish between partnerships and LLPs. Therefore, the conversion has no tax implications for the LLP.
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Author: Nishant Mishra and Associates: CS Nishant Mishra | Contact: 9899864768 | Email: [email protected], [email protected]
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