CONVERSION OF A FIRM INTO LLP

Section 55 of the Limited Liability Partnership Act, 2008 (‘Act’ for short) provides for the conversion from firm into limited liability partnership (‘LLP’ for short). Section 55 provides that a firm may converted into a LLP in accordance with the provisions of Chapter X of the Act and the second schedule.

Firm

Clause 1(a) of Second Schedule defines the term ‘firm’ as defined in Section 4 of Partnership Act, 1932. Section 4 of the Partnership Act provides that ‘partnership’ is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons, who have entered into partnership with one another are called individually ‘partners’ and collectively a ‘firm’, and the name, under which their business is carried on, is called the ‘firm name’.

Convert

Clause 1(b) of Second Schedule defines the term ‘convert’ in relation to a firm converting into a LLP, as a transfer of the property, assets, interests, rights, privileges, liabilities, obligations and the undertaking of the firm to the LLP in accordance with the Second Schedule.

Clause 2 provides that a firm may convert into a LLP by complying with the requirements of the second schedule that are applicable to them. Upon such conversion, the partners of the firm shall be bound by the provisions of the Second Schedule that are applicable to them.

Eligibility

Clause 3 of Second Schedule provides the eligible for conversion from firm into partnership. A firm may apply to convert into a LLP if and only if the partners of the LLP into which the firm is to be converted, comprise, all the partners of the firm and no one else.

Procedure for conversion

The following is the procedure to convert from firm into LLP-

An application shall be made in the format provided in Part A of Form 17 together with the statement of partners in Format provided in Part B of Form 17;
The fee payable for such conversion is as detailed below-
LLP whose contribution does not exceed ₹ 1 lakh – ₹ 500/-;
LLP whose contribution exceeds ₹ 1 lakh but does not exceed ₹ 5 lakhs – ₹ 2000/-;
LLP whose contribution exceeds ₹ 5 lakhs but does not exceed ₹ 10 lakhs – ₹ 4,000/-;
LLP whose contribution exceeds ₹ 10 lakhs – ₹ 5,000/-;
The following statements are to be filed along with the application-
A statement by all of its partners containing the following particulars-
The name and registration number, if applicable, of the firm; and
The date on which the firm was registered under the Indian Partnership Act, 1932 or under any other law, if applicable;
Incorporation document and statement;
On receiving the documents the Registrar shall register the documents and issue a certificate of registration in Form No. 19;
The certificate of registration will state that the LLP is, on and from the date specified in the certificate, registered under this Act;
The LLP shall, within 15 days of the date of registration, inform the concerned Registrar of Firms with which it was registered under the provisions of Indian Partnership Act, about the conversion and of the particulars of the LLP in Form No. 14;
The Registrar may refuse to register any LLP if he is not satisfied with the particulars or other information furnished under the provisions of this Act;
An appeal may be made before the NCLT in case of refusal of registration by the Registrar;
The Registrar may require the documents to be verified in such manner as he considers fit.
Consequences of conversion

The following are the consequences on conversion from firm into partnership-

On and from the date of registration specified in the Certificate of Registration-
There shall be a LLP by the name specified in the registration certificate under the Act;
All tangible as well as 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 LLP without further assurance, act or deed;
The firm shall be deemed to be dissolved and if earlier registered under the Indian Partnership Act removed from the records maintained under that Act.
Every agreement to which the firm was a party immediately before the registration, whether or not of such nature thatthe rights and liabilities there under could be assigned, shall have effect that date as if-
The LLP were a party to such an agreement instead of the firm; and
For any reference to the firm, there were substituted in respect of anything to be done on or after the date of registration;
All deeds, contracts, schemes, bonds, agreements, applications, instruments and arrangements subsisting immediately before the date of registration relating to the firm or to which the firm is a party, shall continue in force on and after that date as if they relate to LLP.It shall be enforceable by or against the LLP as if the LLP were named or were a party instead of the firm;
If any property applies is registered with any authority the LLP shall, as soon as practicable take all necessary steps as required by the relevant authority to notify the authority the conversion and of the particulars of the LLP in such medium and form as the authority may specify;
All proceedings pending 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;
Any conviction, ruling, order or judgment of any Court, Tribunal or other authority in favor of or against the firm may be enforced by or against the LLP;
Every contract of employment shall continue to be in force on or after the date of registration as if the LLP were the employer instead of the firm;
Every appointment of the firm in any role or capacity which is in force immediately before registration, shall take effect and operate from that date as if the LLP were appointed;
Every partner of a firm shall continue to be personally liable with the LLP for the liabilities and obligations of the firm which were incurred prior to the conversion or which arose from any contract entered into prior to the conversion.If any such partner discharges any liability he shall be entitled to be fully indemnified by the LLP in respect of such liability;
Notice of conversion in correspondence

Clause 17(1) provides that LLP shall ensure that for a period of 12 months commencing not later than 14 days after registration, every official correspondence of the LLP shall bear the following-

A statement that it was, as from the date of registration, converted from a firm into a LLP; and
The name and registration number, if applicable, of the firm from which it was converted;
Punishment

Any LLP which contravenes the provisions of clause 17(1) shall be punishable with fine which shall not be less than ₹ 10,000/- but which may extend to ₹ 1 lakh and with a further fine which shall not be less than ₹ 50/- but which may extend to ₹ 100/- for every day after the first day after which the default continues.