LIMITED LIABILITY PARTNERSHIP-PART-XXXII - (Conversion From Unlisted Public Company Into Limited Liability Partnership)

[Dr. Sanjiv Agarwal]

Introduction

An unlisted public company may convert into a limited liability partnership in accordance with the provisions of section 57 of LLP Act, 2008 and the Fourth Schedule there to. Section 57 seeks to provide that an unlisted public company may convert into a LLP in accordance with the provisions contained in Chapter X and the Fourth Schedule of the LLP Act, 2008.

Section 57 allows a public company which is not listed on any stock exchange to get itself converted into a LLP in accordance with the provisions of Fourth Schedule to the Act.

All public companies are not allowed be converted into LLP. Except listed companies, all other companies may be converted into a LLP. While private companies may be converted under Third Schedule, unlisted public companies may be converted under the provisions of Fourth Schedule.

Company

For the purpose of Fourth Schedule, a company would mean any unlisted public company, ie, a public company which is not a listed company.

What is a public company is defined in section (3) of the Companies Act, 1956. A public company may be listed (ie, its shares listed on any recognized stock exchange) or unlisted.

According to section (3)(1) (iv) of Companies Act, 1956, public company means a company which -

(a)                is not a private company;

(b)                has a minimum paid-up capital of five lakh rupees or such higher paid- up capital, as may be prescribed;

(c)                is a private company which is a subsidiary of a company which is not a private company.

The Companies (Amendment) Act, 2000 substituted the definition of public company. A public company means a company which is not a private company and has a minimum paid-up capital of five lakh rupees or such higher paid up capital as may be prescribed. The words used in the section 'paid up' share capital' and not 'subscribed share capital' which means the amount actually paid up on share is to be reckoned for the purpose of calculating the minimum paid up share capital. Further, the paid up share capital included 'equity' as well as preference shares.

After amendment made by the Companies (Amendment) Act, 2000,  private company which is a subsidiary of a company which is not a private company shall be regarded as a public company, accordingly all private companies which are subsidiaries of public company would be covered by the amended provisions and shall become public company. All such companies will need to amend their Articles to remove the restrictive conditions contained in the Articles of a private company and cease to enjoy the privileges available to private companies under the Act. Such company would need to enhance its paid up capital to rupees five lakhs, increase the number of members to at least seven and have at least three directors.

The articles of public company does not contain any restriction provided in section 3(1)(iii) for private company. As per section 12 of the Companies Act, a public company can be incorporated with seven or more persons associated for any lawful purpose. There is no ceiling on the maximum number of members in the public company.

The articles of public company does not contain any restriction provided in section 3(1)(iii) for private company. As per section 12 of the Companies Act, a public company can be incorporated with seven or more persons associated for any lawful purpose. There is no ceiling on the maximum number of members in the public company.

Convert

Clause (1) (b) of Fourth Schedule defines 'convert' for the purpose of conversion to mean a transfer of the property, assets, interests, rights, privileges, liabilities, obligations and the undertaking of the company to the limited liability partnership in accordance with the provisions of this Schedule. This is similar to the definition in Third Schedule.

Listed Company

'Listed company ' has been defined in Fourth Schedule to have the same meaning as per the definition in SEBI (Disclosure and Investor Protection) Guidelines, 2000 issued under Securities and Exchange Board of India Act, 1992.

Accordingly, as per Clause 1.2.1 (xviii) of SEBI (Disclosure and Investor protection) Guidelines, 2000 , listed company means a company which has any of its securities offered through an offer document listed on a recognized stock exchange and also includes public sector undertaking whose securities are listed on a recognized stock exchange. In  variation, section 2(23A) of Companies Act, 1956 defines a listed public company to means a public company which has any of its securities listed on any recognized stock exchange.

As per SEBI's definition, to be a listed company, following conditions should be satisfied-

(a)               any securities (debt, equity etc) could be listed on recognized stock exchange.

(b)               such securities should be offered through an offer document .

(c)               would also include public sector undertakings (including body corporates) whose securities are listed on a recognized stock exchange.

The 'recognized stock exchange' has been defined in section 2(39) of Companies Act, 1956 to mean a stock exchange, whether in or outside India which is notified by the Central Government in the Official Gazette as a recognized stock exchange.

Unlisted Public Company

Clause (1) of Fourth Schedule defines unlisted public company as a company which is not a listed company, ie, its shares are not listed on the recognized stock exchange or its shares, though listed were not offered through a offer document.

Clause 1.2.2 (xxix) of SEBI (Disclosure and Investor Protection) Guidelines, 2000 also defines an unlisted company to mean a company which is not a listed company. It may be noted that a private company can not become a listed company.

Fourth Schedule

The Fourth Schedule relates to the provisions for conversion from unlisted public company into a LLP in terms of section 57 of the LLP Act The Fourth Schedule contains sixteen clauses and are similar to those for conversion of private limited company into a LLP.

Forms

The Form Nos. 14, 18 and 19 are to be used for conversion of unlisted public company to LLP as in case of conversion of private companies into LLP. For details, the part XXXI of the on going series of LLP articles may be referred to.