Conversion of a Private Company into Limited Liability Partnership

Limited Liability Partnerships (LLP) are emerging ever since the introduction of the Companies Act, 2013 as it is a form of business entity, which allows individual partners to be free from the concept of joint liability of partners in a partnership firm. LLP offers nearly all the benefits of a private limited company, with none of the downsides of a partnership firm. It offers limited liability, offers tax advantages, can accommodate an unlimited number of partners, and is credible in that it is registered with the Ministry of Corporate Affairs (MCA). At the same time, it has fewer compliances than a private limited company and is also significantly cheaper to start and maintain.

As a new business, you won’t have money to throw around. While legal should not be ignored (documentation, in particular, is an area that start-ups ignore). Forming a LLP is more advantageous form of organization over a company from compliances, tax and operational flexibility stand point. Therefore LLP may be more suitable for small entrepreneur and professionals particularly. The conversion from the existing corporate structure can be made to a LLP while retaining the advantages of Limited Liability and less compliances. So if you are startup or an entrepreneur, an LLP is much cheaper and viable to start and run.

Section 56 of the Limited liability Act, 2008 deals with the conversion from a private company into a limited liability partnership (or abbreviated as LLP). A private may be converted into an LLP in compliance with the provisions mentioned under Chapter X and the third schedule.

Eligibility for the conversion of private companies into LLP

 
There are certain conditions that must be fulfilled to be eligible for converting the private company into LLP (in accordance with the third schedule). These Conditions are as follows:

1. There should be no security interest in its assets subsisting or in force at the time of making an application for such conversion; and
2. The partners of the LLP to which it would convert should comprise all the company’s shareholders and no other individual.

Once, both the aforementioned eligibility conditions have been successfully met, it is very much clear and understood that the company, its shareholders, the LLP into which the company has converted and the partners of that LLP shall have to strictly comply with the provisions of the Schedule that will apply to them.

Statements to be filed
There are certain statements that are generally filled for converting a company into LLP. The statements in this regard must be filled with the registrar of the company (or abbreviated as ROC). A statement should be provided to the registrar from all shareholders in such form and manner as prescribed in the schedule and this should be accompanied by the fees as defined by the central government for such purpose. This statement should include the name and registration number of the company, and the date on which the company was incorporated. Along with this, an incorporation document and statement as specified in section 11 should also be furnished.

Registration of conversion
Once all the required documents are submitted to the registrar, he shall register the documents and issue a certificate of registration considering the provisions of the act and rules mentioned therein. He would issue the registration certificate in such form as he may determine to specify that the LLP is, on and from the date mentioned in the registration certificate stands registered under the LLP Act.

The registered LLP now shall inform the concerned ROC about such conversion within 15 days from the registration date. Further, the particulars of such registered LLP shall also be furnished in such form and manner as prescribed by the central government.

Registrar may refuse to register
If the Registrar does not find particulars or other information furnished in the application as appropriate or complete, he may wish to refuse to register such conversion. In that case, an appeal shall be made before the National Company Law Tribunal (or abbreviated as NCLT) in this regard by the Registrar.

Effect of registration
On and from the registration date specified in the registration certificate issued under paragraph 4–

1. there shall be an LLP by the name mentioned in the registration certificate registered under the LLP Act;
2. all tangible (movable as well immovable) and intangible property related to the company, all assets, interests, rights, privileges, liabilities, onuses concerning to the company and the whole of the company’s undertaking would be transferred to and conferred to the LLP without much further assurance, act or deed; and
3. The company shall now be considered dissolved and will be removed from the ROC records.

Registration concerning property
If any property to which clause (b) of paragraph 6 applies is registered with any authority, the LLP, in that case, shall, as soon as operational, after the registration date, carry out all the required actions as made obligatory by the relevant authority for notifying the authority of such conversion and the particulars of the LLP in such form and manner as the authority may recommend.

Pending proceedings
All the legal proceedings by or against the company which is still pending before any Court, Tribunal or other authority as on the registration date will be executed, concluded and considered enforceable by or against the newly registered LLP.

Continuance of conviction, ruling, order or judgment
Any conviction, ruling, order or judgment of any jurisdiction (involving any Court, Tribunal or other authority) in favor of or against the company will also be considered enforceable by or against the LLP.

Existing agreements
All the agreements to which the company was considered as a party immediately prior to the registration date, whether or not of such nature that the rights and liabilities thereunder could be assigned, shall have effect as from that date as if–

1. the LLP was now considered as a party to such an agreement in place of the company; and
2. For any reference to the company, there were substituted with reference to anything to be done on or post-registration date will now be a reference to the LLP.

Existing contracts
All the existing contracts mainly involving deeds, contracts, bonds, agreements, instruments and arrangements subsisting immediately prior to the registration date concerning to the company or to which the company was being considered as a party will now continue to exist on and after that date as if they were in connection with the LLP and will also be considered enforceable by or against the LLP as if the LLP were named therein or were a party thereto in place of the company.

Continuance of employment
Every employment contract to which paragraph 10 or paragraph 11 is applicable will continue to exist on or after the registration date as if the LLP were the employer thereunder in place of the company.

Existing appointment, authority or power

1. All the appointments that were made by the company in any role or capacity which was subsisting immediately prior to the registration date will have an effect and operate from that date as if the LLP were appointed that time in place of the company.
2. Any authority or supremacy conferred on the company which is subsisting immediately prior to the registration date will have an effect and operate from that date as if it was conferred on the LLP in place of the company.

Application of paragraphs 6 to 13
The provisions as specified under paragraphs 6 to 13 (both inclusive) will be applicable to any approval, certification or permit issued to the company under any other Act which is subsisting immediately prior to the registration date of the LLP, conditional on the provisions of such other Act under which such approval, certification or permit is being issued.

Notice of conversion in correspondence

1. The LLP must make certain that for a time-span of twelve months commencing not later than 14 days after the specified registration date, every official communication of the LLP bears the following:

• a statement specifying the fact that it was, as from the mentioned registration date, converted from a company into an LLP; and
• The name as well as the registration number of the company from which it was converted.

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2. Any LLP which is in contravention of the provisions of subparagraph (1) shall be liable to punishment and will carry a fine which would not be less than INR 10, 000 but which may extend to INR 100,000 and with a further fine which shall not be less than INR 50,000 but which may extend to INR 500 for every day after the first day after which the default continues.

We provide end-to-end incorporation, compliance, advisory and management consultancy services to our clients in India and abroad. For further details about LLP registration or conversion from Private Ltd to LLP, click here.

Special Economic Zones (Amendment) Bill, 2019

The Special Economic Zones (Amendment) Bill, 2019 was introduced in Lok Sabha by Mr. Piyush Goyal, Minister of Commerce and Industry on June 24, 2019. It was first legislation to be passed by newly- constituted 17^th Lok Sabha. It amends the Special Economic Zones Act, 2005 and replaces an Ordinance that was promulgated on March 2, 2019.  The Act provides for the establishment, development and management of Special Economic Zones for the promotion of exports.

Salient features of the Bill
The SEZ (Amendment) Bill 2019 replaced an ordinance of March 2019, which amended the SEZ Act of 2005 to add two new categories – “trusts or any entity, as may be notified by the Central Government” – among those eligible for setting up units in the notified SEZs. Under the Act, the definition of a person includes an individual, a Hindu undivided family, a company, a co-operative society, a firm, or an association of persons.  The Bill adds two more categories to this definition by including a trust, or any other entity which may be notified by the central government. Below mentioned are the salient features of the Bill:

1. Boost to investment and employment generation

The government had already received eight applications from trusts from reputed companies proposing a total investment potential of INR 8,000 crore. The natures of these trusts or the kind of economic activities they are involved in are not clear yet. Though the opposition was skeptical about the usefulness of the amendment, the SEZs had generated 20 lakh jobs, brought investments worth INR 5 lakh crore, with exports worth INR 7 lakh crore by the end of March 2019.

2. Legroom for a wide range of trusts

The Bill opens up the possibility for all types of trusts to operate from the SEZs – public charitable trusts, private trusts run by big and small corporate houses, business trusts like real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), private companies with their own PF trusts and port trusts run by the government. These trusts run a wide range of activities ranging from health, education, skilling and other livelihood generation activities to manufacturing and financing.

3. Utilization of vacant land and non-operational SEZs

The amendment would also facilitate the use of the SEZ land lying vacant. According to the Ministry of Commerce and Industry, 40 % of the notified SEZs are non-operational and more than 50 % of land notified for the SEZ use is lying vacant.

By allowing trusts to set up units in the SEZs, the unused land could be put to productive use now.

The SEZs have contributed significantly to the economy. SEZs are major export hubs in the country as the government provides several incentives and single-window clearance system. The developers and units of these zones enjoy certain fiscal and non-fiscal incentives such as no license requirement for import; full freedom for subcontracting; and no routine examination by customs authorities of export/import cargo. They also enjoy direct and indirect tax benefits.

If you are looking for assistance to setting up a SEZ unit in India as per your business requirements and wish to gather more information about compliances associated with it to refine your business strategies, our team of experts can assist you throughout the process.

We can also assist you in setting up your business in India, accounting, bookkeeping, payroll, auditing, taxation, secretarial compliances, and trademark registration, business structuring and advisory services. If you require any assistance in this regard, kindly click here

A guide for company name approval – RUN

In order to simplify the Company name approval process and changing the name of an existing company, the Ministry of Corporate Affairs introduced a new simple web-based application called RUN (Reserve Unique Name) for registering any organization. Before RUN, all applications were to be made in the Form INC-1 accompanying with a minimum of 2 Director Identification Number and 1 Digital Signature. Any applicant seeking to reserve a proposed company or a change in an existing company should apply for reservation through the RUN service. The application will then be processed by the Central Registration Centre (CRC) and the proposed name applied should not be undesirable as per the relevant provisions of the Act and the rules mentioned in it.

Names which can be reserved under RUN
Below table gives a brief description regarding the type of companies names that can be reserved along with their respective suffixes:

Company Type
Suffix Required
1.

• Private Limited Company
• Limited / Company

2.

• Section 8 company
• Private Limited

3.

• IFSC Company
• IFSC Limited / IFSC Private Limited

4.

• Unlimited Company
• Unlimited Company

5.

• Nidhi Company
• Nidhi Limited

6.

• Producer Company
• Producer Company Limited

7.

• One Person Company
• (OPC) Private Limited

Validity for reserved company names
The CRC on the basis of information and documents provided, reserve the name for a period of 20 days from the date of approving in case of new company name registration. Similarly, it is 60 days from the date of approval in case of change in the name of an existing company.

Rules regarding the proposed names
Certain regulations pertaining to the reservation of the names are to be followed according to the laws governing the RUN form which are as below:

1. Name stated should be different from the name of an existing company registered.
2. The name should not constitute any offence under any law and also should not be undesirable in the opinion of the Central Government.
3. The company name should not have any word or expression which likely gives the impression that the company is connected to the central or state government or any other local authority unless the approval from the respective government authority has been attained.

Requirements to reserve a unique name via RUN
Below is the list of things required for RUN:

1. An MCA (Ministry of Corporate affairs) account
2. Corporate Identification Number (CIN)
3. The proposed name
4. Documents required with the proposed name

Process for using RUN
Below is the process for using RUN with an MCA account:

1. Firstly, creating an MCA account is important before you access this service. Login the account and enter the name you wish to use and check against the MCA database of the company and LLP names for its availability.
2. For an existing company who wishes to change its name, a CIN will be required for the RUN e-form
3. The applicant is required to enter the name in the form, he wants to reserve for the incorporation of a new company or change the name of the existing company.
4. The user is then supposed to enter the objects of the proposed company and other relevant comments or documents supporting the proposed name.

Upon successful submission of the proposed name in the RUN form, a SRN (Service request number) is generated. Also, a challan serving the proof of the payment, email conveying the proposed name acceptance or rejection status, an approval / rejection letter, and finally a resubmission of the e-form is generated.

Concluding this document, the RUN is an easy web form to fill in with no complications. There is no need to provide other details about incorporation like proposed capital, shareholding or promoter details etc. This as a result waived off inherent limitation of e-form filing which included uploading errors or DSC (Digital Signature Certificate) registration.

If you are looking forward to establish your business in India, we can offer a comprehensive range of professional services including approval for company name, DIN application, incorporation certificate, Digital signature certificate, business structuring, advisory services, tax planning and statutory compliances along with other post-incorporation services as per your business requirements.
Further, we can also assist you in accounting, bookkeeping, payroll, auditing, taxation, trademark registration and other related compliances. If you require any assistance in this regard, kindly click here

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