LLP, which is the recognized form of business organization was introduced in India by the way of the Limited Liability Partnership Act, 2008, and the LLP Rules, 2009. A limited liability partnership (LLP) is a kind of partnership in which all the partners have limited liabilities. It 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 continues irrespective of the changes in the partners and owners. It is also capable of entering into the contracts and holding of property in its own name.
It is a separate legal entity, and it is liable to the full extent of its assets but the liability of the partners is limited to their agreed contribution in the LLP. In an LLP, one partner is not responsible or is not liable for another partner’s misconduct or negligence. In an LLP, all the mutual rights and the duties of the partners within the LLP are governed by an agreement between the 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 which is provided in Schedule I of the Limited Liability Partnership Act, 2008, which describes the matters relating to the mutual rights and the duties of the partners of the LLP.
Further any other form of business such as a partnership which is set up under the provisions of the Indian Partnership Act, 1932, a private limited company and an unlisted public limited company can convert itself into LLP by the provisions of the LLP Act, 2008 and by following the due procedure of law. Following is the Conversion of LLP into a Partnership firm :
Companies Act,2013 for LLP
After the conversion of LLP into Partnership, Section 366 of the Companies Act, 2013 has provided the existing LLPs an option to convert themselves into a Company, which is a welcome move by the Ministry of Corporate Affairs. However certain provisions such as the requirement of having a minimum of seven or more members are restricting the LLPs with fewer partners from its conversion. And any LLP having less number of partners who are willing to convert itself into the Company must increase its number of partners, which is something the small entrepreneurs are not comfortable with. Hence the requirement of a minimum of 7 members is a major hurdle in conversion into the Company form of business. The Government must come up with an amendment in rules to allow the LLPs with 2 partners for the Conversion of LLP into Partnership.
Related: Conversion of Partnership into LLP
Conversion of LLP into Partnership
The introduction of the Companies Act, 2013 allowed the conversion of LLP into Private Limited Company which was not allowed earlier as both the LLP, 2008, and the Companies Act, 1956. The Section 366 of the Companies Act, 2013 provided that any partnership firm, a limited liability partnership, a cooperative society, society, or any other business entity which is formed under any other law consisting of seven or more members, may at any time register under the Companies Act, 2013 as an unlimited company, or as a company which is limited by shares, or a company limited which is guaranteed by following the procedure that is laid down in the Companies (Authorised to Register) Rules, 2014.
Before applying the Conversion of LLP into Partnership, the businessman must ensure the followings:
- That the secured creditors have given their consent for such kind of conversion;
- They should give A notice in the newspaper about such Conversion of LLP into Partnership, one in English and a vernacular language seeking objections must be published;
- They must also that There is a minimum of seven or more members in the existing LLP for converting the LLP into a Private Limited Company.
There must be A general meeting, where the majority of the partners have given their consent for such kind of conversion.
The procedure that is to be followed for the Conversion of LLP into a Private Limited Company is:
Step 1: Apply for DIN & Digital Signature Certificate:
All the seven proposed directors of the company must hold a Director Identification Number (DIN) and the Digital Signature Certificate. In case any of them do not possess both of these numbers then they must apply for the same.
To obtain DIN an application in Form DIR – 3 should be filed on the MCA Portal. The DIN application is then processed and is approved by the Central Government through the office of the Regional Director, Ministry of Corporate Affairs. Form No. DIR – 3 must be accompanied by a self-attested Proof of Identity and Proof of Address and one recent passport size color photograph of the Applicant. All the documents must be attested by a practicing professional viz. Practicing Cost & a Management Accountant, practicing Company Secretary, or a practicing Chartered Accountant.
Step 2: Name Approval
Name approval has to be obtained from the Registrar of the Companies (RoC) by applying an e-Form INC-1. For this, the person needs to decide on an itinerary, as mentioned in Form INC-1. Once the name is approved by the authority, it is valid for 60 days. The subscriber to the Memorandum of Association (MoA) and Articles of Association (AoA) shall be the applicant for the name application.
Step 3: Preparation and Filing of Form URC – 1
After obtaining the name approval from the ROC, the applicant shall prepare and file the Form URC–1 along with the following documents:
- A list showing the names, addresses, and the occupations of all the persons named therein as members with the details of shares which is held by them.
- Showing separately the shares that are allotted for consideration in cash and consideration other than the cash along with the source of consideration and distinguishing, in cases where these shares are numbered, each share by its number, who on a day, not being more than full six clear days before the day of filing this application, were the partners of the Limited Liability Partnership.
- A list showing the particulars of the persons proposed as the first directors of the Company, their names, the including surnames or the family names, the DIN, the passport number (if any) with an expiry date, the residential addresses, and their interests in other firms or the bodies corporate along with their consent to act as a Director of the Company.
- An affidavit from each of the persons who are proposed as the first directors, that he is not disqualified to be a director under section 164(1) and that all the documents are filed with the Registrar for the registration of the Company and contain information that is correct and is complete and it is true to be the best of his knowledge and belief.
- A list containing the names and the addresses of the Partners of the Limited Liability Partnerships.
- A Copy of the LLP Agreement and the Certificate of Registration duty which is verified by at least two designated partners of the LLP.
- A statement specifying the following particulars; a) the nominal share capital of the company and the number of shares into which it is divided; b) the number of shares taken and the amount that is paid on each share; c) the name of the company, with the addition of the word ‘Limited’ or ‘Private Limited’ as the case may require, as the last word or words thereof.
- The written consent or a No Objection Certificate from all the secured creditors of the applicant.
- Written consent from the majority of the members whether they are present in person or by a proxy at a general meeting agreeing for registration under section 366 of the Companies Act, 2013.
- A duly notarized affidavit, from all the members of the partners providing that in the event of registration as a company under Part I of Chapter XXI of the Companies Act, 2013, all the necessary documents or the papers shall be submitted to the registering authority with which the company was earlier registered, for its dissolution as a Limited Liability Partnership. These are the documents that are mandatory for the Conversion of LLP into Partnership.
- The Statement of accounts of the company, which is prepared not later than in 6 days preceding the date of application which is duly certified by the auditor, if applicable.
Some more important documents required for the Conversion of LLP into Partnership are :
- A Declaration of two or more directors verifying the particulars of all members/partners.
- A Copy of Newspaper advertisement.
- A Certificate from a professionally practicing Company Secretary/Cost Accountant /Chartered Accountant certifying the compliance with all the provisions of the Stamp Act, to the extent applicable.
- A No objection certificate from the concerned Registrar of LLP.
After obtaining the name approval, and the approval of Form No. URC – from the Registrar, the draft of Constitutional Documents of the proposed Company i.e. Memorandum of Association (MOA) and the Articles of Association (AOA) is to be drafted and then filed with the RoC along with the forms/documents which have been stated below.
The Subscription Pages of MOA & AOA – The last page of the MOA and the AOA must contain details of the subscribers to the Memorandum and the Articles and the number of shares to be subscribed by each. This is the last page that is required to be executed by the subscribers.
Step 4: Filing of the Incorporation Forms
The following forms are required to be filed with the RoC:
- the e-Form INC 7 ( a declaration of compliance with the requirements of the Act on the application for registration of a company).
- e-Form INC 22 (notice of situation of the registered office).
- e-Form DIR 12 (an appointment of the directors of the company).
- A Power of Attorney is to be executed by the subscribers and the proposed directors.
The Clarifications/Additional Information Required by the RoC:
After all the incorporation papers are filed and are reviewed by the RoC, the RoC may require certain clarifications. These clarifications or the inquiry needs to be satisfied by the person who has been authorized to do so by the Power of Attorney which is filed with the RoC.
Step 5: Issue of Certificate of Incorporation
Once all the clarifications are provided for the Conversion of LLP into Partnership, the Certificate of Incorporation is issued by the RoC and then the company is deemed to be incorporated from the date given in the Certificate of Incorporation.
After obtaining the registration under Section 367 of the Companies Act, 2013, an intimation to this effect shall be given, within fifteen days of such registration to the concerned Registrar (LLP) with whom it was originally registered, along with the necessary documents or the papers for its dissolution as a Limited Liability Partnership.
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Why LLP is better than Private Limited Company