LIMITED LIABILITY PARTNERSHIP-PART-XXXI - (Conversion from Private Company to Limited Liability Partnership)

[Dr. Sanjiv Agarwal]

A private company may convert into a limited liability partnership in accordance with the provisions of section 56 of the LLP Act, 2008 and the Third Schedule.

Section seeks to provide that a private company may convert into a LLP in accordance with the provisions contained in Chapter X and the Third Schedule of the LLP Act. The third schedule provides for the provisions for conversion from private company into a LLP.

This section provides for the conversion of a private limited company into a LLP and such conversion may be done in accordance with provisions of Third Schedule to LLP Act. This section only deals with conversion of a private limited company registered under the Companies Act, 1956.

Clause (1) of Third Schedule defines a company for the purpose of section 56 as a private company defined in section 3(i)(iii) of the Companies Act 1956. Accordingly, private company means a company which has a minimum paid up capital of one lakh rupees or such higher paid up capital as may be prescribed, and by its articles.

(a)  restricts the right to transfer its shares, if any;

(b)  limits the number of its members of fifty not including

(i)   persons who are in the employment of the company; and

(ii)  persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment cease; and

(c)  prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company;

(d) prohibits any invitation or acceptance of deposits from persons other than its members, director or their relatives].

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definition, be treated as a single member;

Convert

To 'convert' in the context of conversion of a private limited company into a LLP means a transfer of the property, assets, interests, rights, privileges, liabilities, obligations and the undertaking of the private company to the limited liability partnership in accordance with Third  Schedule.

Thus, conversion of a private limited company into a LLP would mean the transfer of the following of private company to the LLP in accordance with Third Schedule-

(i)    property

(j)    assets

(k)   interests

(l)    rights

(m)  privileges

(n)  liabilities

(o)  obligations, and

(p)  undertaking

Third Schedule

The Third Schedule to the LLP Act relates to the provisions for conversion form private limited company into a LLP in terms of section 56. Unlike a partnership firm where the liability of the partner is unlimited, in case of a private limited company, it is at par with a LLP so far as liability of partners is concerned.

Third Schedule contains fifteen clauses dealing with different aspects of conversion of a private company into a LLP.

Eligibility for Conversion (Clause 2)

A company may apply for conversion as per Schedule III, if and only if -

(a)  there is no security interest in its assets subsisting or in force at the time of application; and

(b)  the partners of the limited liability partnership to which it converts comprise all the shareholders of the company and no one else.

Thus, at the time of making an application for conversion, there should not be any security interest in the assets of the company in force or subsisting such as charge on assets or corporate guarantee based on its net worth. If any security interest subsists, such a company would not be eligible for conversion into a LLP.

It is also important that all the shareholders of company should become the partners of LLP and none   else should become a partner, ie, no non- shareholder partners would be allowed nor any share-holder will be excused form becoming a partner in LLP. The list of shareholders of company and partners of LLP must be common with same names.

Application, statements to be filed (Clause 3)

Company is required to apply to the Registrar for converting a company into a LLP by filing an application. The following are required to be filed with the Registrar-

(a)  a statement by all shareholders with the following particulars-

(i)   the name and registration number of the company;

(ii)  the date on which the company was incorporated; and

 (b) incorporation document and statement under section II.

The statement as per (a) above should be signed by all the shareholders and made in the prescribed form. Rule 39 of the LLP Rules prescribe the manner, form and fee for making such application.

Registration of Conversion (Clause 4)

The conversion is required to be registered by the Registrar by registration of documents and issue of certificate of registration. The company shall stand converted into LLP from the date specified in the registration certificate issued in prescribed Form No. 19 of LLP Rules.

The registration shall be complete on issue of certificate. The certificate states that the LLP is on the date specified in the certificate, registered under the LLP Act.

Clause 4 also requires that within 15 days of the registration of LLP by Registrar, LLP should inform the Registrar of Companies about the conversion of company into a LLP and particulars of LLP. Form No 14 has been prescribed for this purpose.

Other Provisions

Other provisions of Third Schedule are similar to that of Second Schedule with reference to conversion of firms into companies with the difference that those provisions when read in relation to Third Schedule would mean shareholder or member for partners and company for firms. These provisions are as follows-

Clause of III Schedule	Relating to
5.	Registrar may refuse to register
6	Effect of registration
7	Registration in relation to property
8	Pending proceedings
9	Continuance of convictions, ruling, order or judgment
10	Existing Agreements
11	Existing contracts, etc.
12	Continuance of Employment
13	Existing appointment, authority or power
14	Application of Paragraph 6 to 13
15	Notice of Conversion in correspondence

Forms

Following forms are required to be filed / used in relation to conversion of a partnership firms into a LLP. 

From No.	Section	Rule	Relating to
14	56 4(III Schedule)	39 (4)	Form for intimating the Registrar of Companies  for conversion of company  into LLP
18	56 3 (III Schedule)	39(1)	Application by a company for its conversion into LLP
19	56 4 (III Schedule)	39(3)	Certificate of registration on conversion