CONVERSION OF PARTNERSHIP FIRM INTO LIMITED LIABILITY PARTNERSHIP
The shifting of business of traditional Partnership Firms into Limited Liability Partnership has increased in recent years. The reason behind this is that the LLP have the following feature which traditional Partnership Firms do not have:
1. Liability of Partners is limited;
2. Perpetual Succession and Continuity;
3. No limit on Number of Partners;
5. Simplified Compliance.
Meaning of Firm
"Firm" means a firm as defined in section 4 of the Indian Partnership Act, 1932.
Meaning of Conversion:
"Conversion", means transfer of:
of the firm to the limited liability partnership.
Difference Between LLP and Partnership Firms:
S No Particulars LLP Partnership Firm
1. Separate Legal Entity Yes No
2. Liability of Partners Limited Unlimited
3. Number of Partners No Limit Maximum 50 Partners
4. Requirement of maintaining Yes No
Books of Accounts
5. Statutory Audit Mandatory, if Turnover exceed No Requirements
Rs 40 Lakh or contribution exceed
Rs. 25 Lakh
Why to Convert Partnership Firm into LLP or Why LLP is better than Partnership?
1. No limit to number of partners in LLP;
2. The liability of the partners is limited;
3. There is no limit on the minimum amount of capital to be contributed;
4. LLP has perpetual succession;
5. LLPs enjoy higher creditworthiness as compared to Partnerships;
6. Complete flexibility in managing the business;
7. Foreign Direct Investment (FDI) is in allowed LLPs;
8. Professionals of various disciplines can work together in LLP.
Regulatory Framework for Conversion of Firm into LLP:
1. Section 55 of the LLP Act, 2008:
A firm may be converted into LLP in accordance with the provisions of Chapter X and Second Schedule of LLP Act, 2008.
2. Rule 38 of LLP Rules, 2009:
An application shall be made in form 17 for conversion of Firm into LLP;
The Registrar shall, on conversion of firm into LLP issue a certificate of registration;
The LLP so converted shall inform the concerned Registrar of firms about conversion in Form 14.
3. Schedule 2 of LLP Act, 2008.
Eligibility criteria under LLP Act for conversion of Partnership Firm into LLP:
LLP Act permits conversion of a Firm into LLP as per section 55 of the LLP Act.
One of the major requirements for the conversion of Partnership Firm into LLP is that the LLP formed from the Partnership have the same Partners as the original Partnership. The LLP being converted cannot have new or less Partners than the Partnership firm.
Further registered as well as unregistered Partnership Firms are eligible to be converted in LLP.
Pre- Conditions for Conversion:
1. The firm may be or may not be registered under the India Partnership Act, 1932;
2. There should be consent in writing of all the Partners for conversion;
3. Every partner should contribute to the LLP;
4. DPIN (DIN) should be acquired for all the designated partners;
5. All the partners becoming partners in the LLP, shall contribute in the same proportion in which their capital accounts stood in the books of the Firm;
6. Up to date filing of Income Tax Returns;
7. Consent of all the creditors shall be given for the proposed conversion;
8. At least 1 designated partner shall be Resident in India.
Notice of Conversion in Correspondence:
1. The LLP shall ensure that for a period of 12 months commencing not later than 14 days after the date of registration, every official correspondence of the LLP bears the following:
(a) a statement that it was, as from the date of registration, converted from a firm into a LLP; and
(b) the name and registration number, if applicable, of the firm from which it was converted.
2. Any LLP which contravenes the above provisions shall be punishable with fine:
Minimum: Rs 10,000/-
If default is continuing one the LLP shall be punishable with a further fine:
Minimum: Rs 50/-
For every day after the first day after which the default continues.
Procedure for Conversion of Firm into LLP
STEP 1: Apply for DPIN (DIN) of Designated Partners:
First requirement of conversion is to Obtain DPIN (DIN) for all the Designated Partners. However if there shall be only 2 Designated Partners in the proposed LLP then DIN shall allotted them by Fillip form itself.
STEP 2: Apply for DSC (Digital Signature Certificate):
Getting DSC of any one Designated Partners for digital authentication of the Incorporation/Conversion. Fillip Form and Form 17 shall be digitally signed by any one designated partner.
STEP 3: Apply for Name Reservation:
File form RUN LLP for reservation of name of the proposed LLP. Addition of the word LLP or Limited Liability Partnership at the end is allowed in the existing name of the firm to be converted.
STEP 4: Filing of Form Fillip:
After approval of name of proposed LLP, file Form Fillip for conversion of Firm into LLP following information shall be given in form Fillip:
1. Name of LLP;
2. Full address of Registered Office;
3. Main Objects of the LLP;
4. Name of the office of Registrar in which the proposed LLP is to be registered/converted;
5. Based on business activities, main division of industrial activity of the LLP as per NIC-2004;
6. Total Number of Designated Partners and/or Partners;
7. Details of designated partners and/or partners such as their name, Father`s name, Date of Birth, Mobile & Telephone No, E-mail address, present and permanent address, educational qualification, place of birth, duration of stay at present address, PAN card Number, Passport/Aadhar/DL/Passport Number;
8. Monetary Value of contribution (in Rs.) by each Partner/Designated Partner;
9. Interest of Partners/Designated Partners in other Entities;
10. Total monetary value of contribution in the LLP;
11. Statement by a CS/ Advocate / CA/ CMA in practice that all the requirements of the LLP Act, 2008 and the rules made thereunder have been complied with, in respect of incorporation/conversion.
Attachments of Fillip Form:
(a) Subscribers Sheet including Consent;
(b) Interest of designated partner and/or partners in other entities;
(c) ID proof of all designated partners and/or partners (viz. Aadhar Card/Voter ID/Passport/Driving Licenses, any one)
(d) Address Proof of all designated partners and/or partners (Viz Bank Statements/Electricity Bill/Telephone Bill/Mobile Bill, any one);
(e) Pan Card of all designated partners and/or Partners;
(f) Utility Bill of the premises where registered office of the LLP is proposed to be situated;
(g) NOC from the owner of the premises where registered office of the LLP is proposed to be situated;
STEP 5: Filing of Form: 17:
Application for conversion is required to be filed by the partners along with the following attachments:
1. Statement of assets & liabilities of the firm duly certified by a Chartered Accountants in Practice;
2. List of Creditors along with their consent for conversion;
3. Consent of all partners for conversion;
4. Approval from any other body/authority as may be required;
5. Statement of Partners;
6. Copy of Acknowledge of Latest Income Tax Return;
7. Partnership Deed;
8. Registration Certificate of Partnership Firm issued by Registrar of Firms, if any.
STEP 6: Approval/Sent for Re-submission Refusal by the Registrar:
The Registrar, on satisfying that a firm has complied with the provision of the Second Schedule, the LLP Act and rules made thereunder, He shall subject to the provisions of the LLP Act and the rules made there under, register the documents submitted and issue a Certificate of Incorporation pursuant to conversion of firm in LLP.
However if the registrar has a reasonable ground to believe that the documents filed are not proper or he requires some additional documents then he can ask the applicant for the same.
If the Registrar has a reasonable ground to believe that the application for conversion filed is improper or the applicant fails to comply with the provisions of the LLP Act, 2008, the Schedule 2 and LLP Rules, 2009 regarding conversion, He can reject the application mentioning reason of rejection.
An appeal may be made before the Tribunal in case of refusal of registration by the Registrar.
STEP 7: 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:
Copy of Certificate of Incorporation of LLP;
Copy of Incorporation documents submitted.
STEP 7: Preparation, Execution and filing of form LLP-3 (LLP Agreement):
Stamp Duty shall be paid on the LLP Agreement, such stamp duty may differ state to state;
LLP agreement shall be duly executed/signed by all the designated partners and/or partners of the LLP and witnessed by two witnesses;
Form LLP 3 shall be filed with Registrar within 30 days from the date of conversion of Firm into LLP. There shall be only one attachment in form LLP-3 viz. LLP Agreement.
EFFECTS OF CONVERSION
On and from the date of registration (viz. Conversion) specified in the certificate of registration issued:
(a) There shall be a limited liability partnership by the name specified in the certificate of registration;
(b) The firm shall be deemed to be dissolved and removed from the records maintained under that Indian Partnership Act, 1932.
(c) all tangible and intangible property vested in the firm, all assets, interests, rights, privileges, liabilities, obligations relating to the firm and the whole of the undertaking of the firm shall be transferred to and shall vest in the limited liability partnership without further assurance, act or deed; and
(d) All proceedings by or against the firm which are pending in any Court or Tribunal or before any authority on the date of registration may be continued, completed and enforced by or against the LLP.
(e) Any conviction, ruling, order or judgment of any Court, Tribunal or other authority in favour of or against the firm may be enforced by or against the limited liability partnership.
(f) All existing contracts and agreements in which the firm was a party shall continue to be in force with the LLP as a party.
(g) Every partner of a firm that has converted into a limited liability partnership shall continue to be personally liable (jointly and severally with the limited liability partnership) for the liabilities and obligations of the firm which were incurred prior to the conversion.
(h) Every contract of employment shall continue to be in force on or after the date of registration as if the limited liability partnership were the employer thereunder instead of the firm.
FREQUENTLY ASKED QUESTIONS
1. ADM Marketing (a Partnership firm registered under the India Partnership Act, 1932) have 3 partners viz. Shri Arvind, Shri Manpreet and Shri Karva. Now Shri Arvind and Shri Manpreet wants to get the partnership firm converted into LLP and admit Shri Harshit as new Partner but Shri Karva does not want to be partner in LLP, can firm be converted into LLP without Shri Karva as partner and Shri Harshit admitting as new partner?
Answer: The LLP being converted cannot have new or less Partners than the Partnership firm thus the firm shall be eligible to convert itself in the LLP only if all the existing partners become partner in the LLP.
2. Can only registered Partnership Firms be converted in LLP?
Answer: No registered as well as unregistered Partnership Firms be converted in LLP.
3. What is the Regulatory Framework for Conversion of Firm into LLP?
Answer: For conversion of Firm into LLP, provisions of following Section, Rule and Schedule shall be complied with:
Section 55 of the LLP Act, 2008;
Rule 38 of LLP Rules, 2009;
Schedule 2 of LLP Act, 2008.
4. Is the consent of all creditors mandatory for conversion?
Answer: Consent of all the creditors shall be mandatorily obtain for conversion of Firm into LLP.
5. Is the consent of all partners of firm is mandatory for conversion?
Answer: Yes, Consent for conversion of all partners is mandatory.
6. Shri Arvind and Shri Manpreet started partnership firm in 2017 by contributing Rs 50,000/- each as their initial capital, Now in 2021 they decided to convert the firm in LLP and decided that Shri Arvind will contribute Rs 60,000/- and Shri Manpreet will contribute Rs 40,000/- to the LLP as their contribution. Can they do so?
Answer: No, all the Partners becoming partners in the LLP, shall contribute in the same proportion in which their capital accounts stood in the books of the Firm.
7. How many designated partners required for conversion of Firm into LLP?
Answer: at least 2 designated partners shall be required for conversion of firm into LLP.
8. It is necessary to have at least one designated partner who was resident in India?
Answer: Yes, it is mandatory to have at least one designated partner who stayed at least 182 days in India in the previous financial year.
9. Some legal proceeding were initiated against M/s ADM Marketing (a partnership firm) and its partner Shri Arvind has an opinion that the Firm should be converted into LLP for avoiding such legal proceedings. Is the contention of Shri Arvind is valid?
Answer: The contention of Shri Arvind is not valid. All proceedings by or against the firm which are pending in any Court or Tribunal or before any authority on the date of registration may be continued, completed and enforced by or against the LLP.
10. Is it necessary to intimate the Registrar of Firms about the conversion of Firm into LLP?
Answer: Yes, the LLP shall within 15 (Fifteen) days from the date of conversion intimate about such conversion to the registrar of firms in Form-14.
11. Is the LLP liable to give a statement in all its correspondences about its conversion?
Answer: The limited liability partnership shall ensure that for a period of 12 months of registration, every official correspondence of the limited liability partnership bears the following:
(a) a statement that it was converted from a firm into a LLP w.e.f………; and
(b) the name and registration number, if applicable, of the firm from which it was converted.