LIMITED LIABILITY PARTNERSHIP-PART-XXX - Conversion to Limited Liability Partnerships

[Dr. Sanjiv Agarwal]

Conversion from firm into limited liability partnership (Section 55) (contd.)

Refusal to Register (Clause 6)

The power to refuse registration of conversion of firm into LLP vests with the Registrar. It is not obligatory on the Registrar to register the conversion and the registration would depend upon the satisfaction of Registrar in relation to the particulars or other information furnished to him. If he deems so necessary, he may also require verification of documents submitted to him in such manner as deemed fit. If he is not satisfied, he may refuse to register the LLP.

An appeal may be preferred before the Tribunal (Company Law Board) in case of refusal to register the LLP by the Registrar.

Registration of Property (Clause 8)

After the registration of LLP, it shall soon have to take all necessary steps to notify the authorities where any of its properties are registered, about the conversion of firm into a LLP along the particulars of LLP in such from and medium as that registering authority may specify. This would become utmost necessary in case of immovable properties, other rights and interests etc which are registered with any authority.

The LLP is required to take all the steps required and as soon as practicable after the registration of conversion.

Pending Proceedings (Clause 9)

When a LLP is created from a firm, it steps into the shoes of erstwhile firm and all the proceedings on the date of registration

(i) by the firm, or

(ii) against the firms

in any

(i) Court,

(ii) Tribunal, or

(iii) Before any authority

shall be continued; completed and enforced by or against the LLP.

Such legal cases or proceedings or suits may be both- taken by or against the company or any public officer or member thereof. The pendency of the suit on the date of registration is important. No new suit can be instituted after registration of new company against the old company. Such pending legal proceedings will continue as if the registration has not taken place.

Conviction, Rulings etc (Clause 10)

Similar to Clause 9, Clause 10 provides that any conviction, ruling, order or judgment of any court, tribunal or other authority which are in favour of the firm or against the firm may be enforced by or against the LLP. Such orders, ruling, conviction or judgments shall from the date of conversion be binding on the LLP instead of the firm.

Existing Arrangements (Clause 11)

All the agreements to which the firm was a party immediately before the date of registration of conversion into a LLP shall have the effect firm the date of registration as if -

(a) the limited liability partnership were a party to such an agreement instead of the firm; and

(b) for any reference to the firm, there were substituted in respect of anything to be done on or after the date of registration a reference to the limited liability partnership.

This effect shall be there notwithstanding the fact whether any rights or liabilities in such agreement could be assigned or not. This effect is automatic upon conversion and any clause contrary to this or putting any rider to such effect shall not be binding on the LLP. Thus, from the date of registration, LLP will be substituted for the firm in every agreement which the firm was having prior the conversion.

Existing Contacts (Clause 12)

Similarly, as in clause 11, all existing contracts etc in force or subsisting immediately before the registration of LLP relating to firm or to which such firm was a party shall continue to be in force with the change that instead of firm, they will now relate to the LLP and LLP would automatically become a party, Such contracts etc shall be enforceable by or against the LLP as if LLP was named therein or was party to such contracts. This clause would apply to all-

(i) deeds

(ii) contacts

(iii) schemes

(iv) bonds

(v) agreements

(vi) applications

(vii) instruments, and

(viii) arrangements

made by the erstwhile firm and as such all deeds, contract, schemes, etc shall with effect from the date of registration of conversion be dealt with or by the LLP.

Continuance of Employment (Clause 13)

Upon conversion, all contracts or agreements of the firm in relation to employment shall continue to be in force after the registration of LLP as if the LLP were the employer and not the firm. For all the employees, LLP would therefore, become the employer.

Existing appointment, Authority or Power (Clause 14)

Every appointment of the firm (in any role or capacity) and any authority or power conferred on the firm which were in force immediately before the date of registration of LLP shall continue and shall take effect and operate from the date of registration as if the LLP was appointed or conferred upon the LLP.

Application of certain Provisions (Clause 15)

The following provisions of Second Schedule shall apply to any approval, permit or licence issued to firms under any other Act and in force immediately before the registration of LLP

Clause 7 Effect of registration

Clause 8 Registration in relation to property

Clause 9 Pending proceedings

Clause 10 Continuance of conviction, ruling, order or judgment

Clause 11 Existing arrangements

Clause 12 Existing contracts etc

Clause 13 Continuance of employment

Clause 14 Existing appointment, authority or power

This application shall however, be subject to provisions of such other Act under which such approval, permit or licence has been issued.

Partner's Liabilities and Obligations (Clause 16)

The partners of the firm shall continue to be personally liable jointly and severally with the LLP for the liability and obligations of the firm, which were incurred prior to the conversion or arising from agreement or contracts entered by firm prior to the conversion. This liability of partners for liabilities of partners and obligations of firm before conversion shall continue for all the partners of the firm which were the partners just before the conversion.

In case of any of the partners discharging the liability as aforesaid, such partners shall be entitled to be fully indemnified by LLP in respect of discharge of such obligation or liability provided there is no agreement with the LLP to the contrary.

Notice of Conversion in Correspondence (Clause 17)

According to sub para (1), all official correspondence of the LLP shall bear a notice of conversion from firm to LLP for a period of twelve months commencing from a day within fourteen days from the date of registration. For example, if a conversion has been registered on 10th April 2009, the fact that conversion has been registered shall be printed on all official correspondence for a period of one year from any date between 10th and 25th April 2009 till such date in 2010. Every official correspondence would include letterheads, invoices, notices etc. What is required to be disclosed is -

(a) a statement that it was, as from the date of registration, converted from a firm into a limited liability partnership; and

(b) the name and registration number, if applicable, of the firm from which it was converted.

Thus, following particulars should be disclosed

(a) - - - - LLP (Registration No ---) is converted from a firm to LLP w.e.f.-----(date )

(b) Firm's Name----(Registration No---)

Penalty for Contravention of sub para (1) of Clause 17

The contravention of sub para (1) in relation to publication of particulars in official correspondence shall be punishable with monetary fine. Any LLP which contravenes shall be liable to punishment with the following fine -

(a) Minimum fine Rs. 10,000

(b) Maximum fine Rs. 1,00,000

(c ) Further fine for continuing default till the default continues-

(i) minimum fine Rs. 50 for every

(ii) maximum fine Rs 500 for every day

(from first day after which the default continues).

Forms

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

Form No	Section/ Clause	Rule	Relating to
14	55 5 (II Schedule)	38 (4)	Form for intimating the Registrar of Firms for conversion of firm into LLP
17	55 4 (II Schedule)	38(1)	Application by a firms for its conversion into LLP
19	55 5 (II Schedule)	38(3)	Certificate of registration on conversion

 

 

 

Discussions to this article

[MVS Surya Rao]

what will be the status of partners in LLP. can they draw money freely like they do in a partnership firm.

[Dr. Sanjiv Agarwal]

Yes, theyb can but subject to the LLP agreement. There can even be a clause in the LLP agreement for remuneration or salary and monthly withdrawls.

 

Sanjiv Agarwal