Introduction

The Limited Liability Partnership (LLP) structure has gained immense popularity in the corporate sector in recent times. Since the enactment of the Limited Liability Partnership Act, 2008 by the Parliament of India, various business entities in the country, especially the small and medium-scale business enterprises, have opted for conversion of their Private Limited companies into LLPs so that they can have access to the various benefits that can be availed under this structure. Pre-dominantly the benefits revolve around limited liabilities for the Partners, reduced compliances and ease of movement of capital & profits.

But this whole process of transition involves a lot of complex procedures. Therefore, it's crucial for the entities to understand various steps involved in the process and the benefits, challenges and other impacts of the intended conversion before venturing into the intricacies of it. Let us try to have a fair understanding of the concept of an LLP and the whole process involved while converting a private limited company into an LLP, along with its possible implications and the key points to be taken into consideration during the entire transition process.

What is an LLP?

A Limited Liability Partnership (LLP), as defined under the provisions of the Limited Liability Partnership Act, 2008, is a composite structure for businesses that combines the advantages of a company and the flexibility of a partnership. The LLP structure is altogether a separate legal entity that provides limited liability protection to its partners, ensuring that they are responsible only for their agreed contribution in the LLP while the LLP itself bears full liability for its assets and obligations. As a separate legal entity, an LLP can enter into contracts and may own properties in its own name, and its existence remains unaffected by any changes in the partnership. Most importantly, the partners in an LLP are protected from any joint liability that may arise due to an unauthorised or wrongful action of another partner in the concerned LLP. The mutual rights and duties within an LLP are dictated by an agreement among the partners of the LLP or between the LLP and its partners, thus clubbing the features of both corporate structures and partnership firm structures.

Key Considerations for a Company before initiating the process of converting it into an LLP

There are several criteria for a company that need to be met by an entity before initiating the process of its transition into an LLP. A Private Limited Company can be converted into an LLP in compliance with the provisions specified in the Section 56, 58 and the Third schedule of Limited Liability Partnership Act, 2008.

Pre-Requisites for a Private Limited Company for Conversion into an LLP:

The Required Steps for Conversion of a Company into an LLP

Let us go through the steps for the process of converting of a company into an LLP in detail.

Board and Shareholder Resolution

The first step that a company has to initiate in the process of transition is to call for a board meeting and take approval of the board on the following things:

• Conversion of the Company into LLP
• Authorise the Directors for Filing
• Convene an Extraordinary General Meeting to take approval of the shareholders.

Once the board resolution is passed, an Extraordinary General Meeting is to be organised and consent from all the shareholders for the intended conversion of it into an LLP must be obtained.

Application for Name Approval

File Form LLP-RUN (Reserve Unique Name) to get approval for the LLP name with the following details and attachments:

Filing of application for conversion

Company must file the Form 18 along with Form FiLLiP and following attachment:

Issuance of Certificate of Registration

Once the conversion form is approved by authority, a Certificate of Registration will be issued, confirming the conversion of the company into an LLP.

Effect of Conversion of a Private Limited Company into an LLP

On and from the date of conversion of the erstwhile company into an LLP as specified in the COI, an LLP comes into existence and all the tangible (movable or immovable) and intangible property vested with the Company, all the assets, interest, rights, privileges, liabilities and obligations relating to the Company and the whole of the undertaking of the Company shall be transferred to and shall vest in the LLP without further assurance, act, or deed, and the Company shall be deemed to be dissolved and removed from the records of the registrar of the Companies.

Notice of Conversion into LLP

The LLP should intimate and update about the conversion of the company into an LLP in various departments like IT, GST, PF, ESIC, etc. The LLP shall include the following (for a period of 12 months) in its every correspondence, i.e., bills, letterheads, emails and all other communications: a. a statement that it was, as from the date of registration, converted from a company into an LLP; and b. the name and registration number of the company from which it was converted.

Advantages of Converting a Company into an LLP

Challenges and Limitations of an LLP

Like every other business structure, Limited Liability Partnership too has its own pros and cons. As we already have listed the benefits that can be availed under the LLP structure, let us now delve into the challenges and the disadvantages that the system has got.

Conclusion

As is evident from the discussions above, the decision to convert a private limited company into an LLP should be made after considering all the pros and cons and considering the long-term business strategy of the organisation. Since benefits such as reduced compliance and tax advantages are also accompanied by limitations like constraints in fundraising and adverse investor perceptions in certain cases; it is crucial to consider all these factors before reaching the decision to go through the process of transition. It is essential for the businesses to consult their legal and financial advisors to ensure a smooth transition process, which would enable the businesses to achieve their aimed objective of fostering growth, flexibility and strategic advantages in the increasingly competitive business landscape.