Llp Mantra Iv 02 Jun 2009

1. LLP MANTRA
A Publication by Corporate Professionals - {Y-01).{V-04)
LLP

2. Insight
Regular Section – Convert Your Company to LLP
Particulars Page No.
3-4
FAQ’S – Conversion to LLP
Regular Section – Conversion Procedure 5-8
9
Conversion Segment on Global Comparison
LLP in News 10
11
Recent Queries on LLP Club
Grey Areas in LLP 11
12
Our Offerings 12
Public Opinion 12
Page 2 of 13

3. Regular Section – Conversion to LLP
Why Private Companies should convert to LLP?
Limited Liability concept combines the organizational flexibility of a partnership firm coupled with
the advantage of limited liability for its partners. The key features of the LLP such as a separate
legal entity with unlimited number of partners, no partner being liable on account of the
independent or unauthorized actions of other partner(s), liability of partners being limited to the
respective stake of each partner in the LLP, are a distinct advantage over other form of
organization.
Such distinct features would be the key drivers for forming LLP, rather than Company for
planning different structures.
Another major reason for conversion of a company into an LLP is on the tax front. Currently, the
Income-tax Act, 1961, provides for payment of minimum alternate tax (MAT) as also for
payment of dividend distribution tax (DDT) by companies. An LLP, which is not a company, is
not be liable to pay MAT, DDT and even surcharge on income tax.
Major advantages as compared to Company
• No need of converting into Public Company to have members more than 50 ,as there is
no limit on maximum number of partners
• Minimal Government Intervention
• Minimal cost of conversion
• Less Compliance level
• No requirement of holding any meeting
• No requirement of maintenance of Large statutory records
• Limited Liability as in case of Companies.
• No restriction on related party transactions
• No Minimum alternate tax & dividend distribution tax.
• No mandatory audit in some cases.
• Less financial disclosure norms.
Status upon conversion.
It is essential to note that on conversion, all the partners of the partnership firm shall become
the partners of the LLP. It is provided that no other person would become partner on conversion
into an LLP for the simple reason that on conversion, it should be a mirror image.
Page 3 of 13

4. On conversion, all the tangible (movable and immovable) property and the intangible property,
all assets, interest, rights, privileges, liabilities, obligations of the firm/Company shall stand
transferred to, and vest in, the LLP. Also, the firm so converted into an LLP shall cease to exist
upon conversion
Capital Gain on Conversion
Under the provisions of LLP Act, 2008 on conversion of company into LLP, all tangible (movable
or immovable) and intangible property vested in the company, all assets, interests, rights,
privileges, liabilities, obligations relating to the company, and the whole of the undertaking of the
company, shall be transferred to and shall vest in the limited liability partnership without further
assurance, act or deed;
Section 45 of the Income Tax Act provides that any profit or gains arising on transfer of capital
asset shall be chargeable to capital gain. Though Section 47(xiii) of the Income Tax Act
exempts the conversion of Firm/LLP (as per Union Budget 2009-10) into Company from the
provisions of Capital Gains subject to certain conditions that the all the Partners before the
succession become the shareholders of the Company in the same proportion of the capital
account on the date of succession but no exemption is granted to conversion of company into
LLP.
Therefore till any such amendment in Income Tax Act, the transfer of all assets (movable
assets) and liabilities of the Company will be made at their Book Value at the time of conversion
to avoid any Capital Gain Tax. In respect of immovable property, as per section 50C of the
Income Tax Act, in case of transfer of land , building or both, the value of asset calculated for
the purpose of making the payment of stamp duty ,shall be taken to be value of asset and
therefore any difference in the book value and valuation as per stamp duty, shall be liable for
capital gain
Page 4 of 13

5. Regular Section – Conversion Procedure
Page 5 of 13

6. Step I Deciding the Partners and Designated Partners
A Private Company desires to convert its status to LLP Form shall foremost decide the
designated Partners of the proposed LLP, as only the members can be the Partners of the
converted LLP and of these members of the company at least two Partners would be the
Designated Partners.. In case of Body Corporate who is a member of the Company, desires to
appoint a designated partner, in that case their nominee can be appointed as the designated
Partner.
Parameters for deciding Designated Partners:
1. Minimum of Two Individuals as Designated Partners, of total no. of Partners.
2. Atleast One Designated Partner to be Resident Indian.
In case of conversion of Private Limited Company into LLP, all the shareholders of the
Company to be partners in the LLP and no one else and also there will be no security interest
subsisting or in force at the time of application in the assets of the Company.
Step II Obtaining DPIN No. & Digital Signature
Designated Partner Identification Number (DPIN): Every Designated Partner have to obtain a
DPIN from the Registrar of LLP.
Digital Signature Certificate: Any one Designated Partner shall obtain a Digital Signature.
Step III Checking the Name Availability
The next step is to make an application in eForm 1 of Rule 18(5) of the Limited Liability
Partnership Act 2008, for reservation of the desired name of the LLP on payment of the
prescribed fees.
A Board resolution passed by the Company approving the conversion into LLP shall be attached
with the aforesaid form.
Step IV Drafting of LLP Agreement
The next pertinent step is drafting of Limited Liability Partnership Agreement governing the
mutual rights and duties among the partners and among the LLP and its partners.
It is not necessary to have the LLP Agreement signed at the time of incorporation, as the details
of the same needs to field in eform 3 within 30 days of incorporation but in order to avoid any
dispute between the partners as to the terms & conditions of the agreement after the conversion
Page 6 of 13

7. into LLP, it is always beneficial to have the LLP Agreement drafted and executed before the
incorporation of the LLP
Step V Filing of Incorporation Documents
Next is the filing of prescribed e-forms with the Registrar of LLP for incorporation of the LLP on
payment of prescribed fees based on the total monetary value of contribution of partners in the
proposed LLP.
eForm 2: Incorporation Document This is an informative document setting down the details of
LLP, its Partners including designated partners, amount of contribution along with Subscription
Sheet to be filed with
eForm 3: Details of LLP Agreement This form provides for the necessary information in respect
to the LLP Agreement entered into between the partners.
eForm 4: Consent of Partners and Designated Partners to be filed with the Registrar of LLP
within 30 days of Incorporation.
Step VI Filing of Conversion Application
Application for conversion in eForm 18 to be submitted by the Shareholder of the Company
covering name, registration number and date of Incorporation of the Company, consent of all
shareholders of the Company along with following details:
 Whether any security interest in the assets of the company is subsisting or in force
 Whether up to date Income-tax return is filed under the Income-tax Act, 1961.
 Whether any prosecution initiated against or show cause notice received by the
company for alleged offences under the Companies Act, 1956.
 Whether any proceeding by or against the company is pending in any Court or Tribunal
or any other Authority.
 Whether any conviction, ruling, order, judgment of any Court, Tribunal or other authority
in favour of or against the company is subsisting.
 Whether any clearance, approval or permission for conversion of the company into
limited liability partnership is required from anybody/ authority. etc
Step VII Certificate of Registration
After the all formalities and filings been complied with by the applicants , the Registrar of LLP to
issue a Certificate of Registration as to conversion of the LLP. The Certificate of Registration
issued shall be the conclusive evidence of conversion of the LLP.
Page 7 of 13

8. Step VII Information to Registrar of Companies
Converted Limited liability partnership to file within fifteen days of the date of registration,
information to the concerned Registrar of Companies with which it was registered under the
provisions of the Companies Act, 1956 about the conversion and of the particulars of the limited
liability partnership in eForm 14.
Page 8 of 13

9. FAQ – Conversion to LLP
Whether it is necessary that all the shareholders shall become the partners of LLP
post conversion?
Yes, as per Schedule III & IV of the LLP Act, all shareholders shall become the partners
of the LLP post conversion.
What are the Prescribed Forms for conversion?
Form 17 is required to be filed for conversion of Firm to LLP and Form 18 is required to
be filed for conversion of Private/ Unlisted Company to LLP.
What is the treatment for stamp duty issues, both in terms of original
incorporation and conversion from other business structures? Would there be
any stamp duty exemption in case of conversion?
The Act does not contain any provision for treatment of stamp duty issues either on
incorporation of an LLP or on conversion of other entities into LLP since this is a subject
reserved for the States. This, however, is an important issue from the point of view of
making the LLP structure more attractive. Currently there is no clarity, whether there
would be any stamp duty exemption on conversion into LLP or not.
Whether LLP would be able to convert itself into company under the Companies
Act, 1956?
Yes, LLP can convert themselves into Companies under the provisions of Part IX of the
Companies Act 1956
What will be the treatment of reserves post conversion of company into LLP?
Presently there is no clarity as to what will be the treatment of reserves post conversion,
there. It can be treated as reserves post conversion or it can also be credited to the
capital account of the partners.
What are the requirements and consequence provided in the Act in respect of
licenses, permits, approvals etc obtained by a firm, private company or an
unlisted public company, prior to its conversion into LLP?
It has been provided in the Act that on conversion of a firm/private company/unlisted
public company into LLP, any approval, permit or license issued to the firm/private
company/unlisted company under any other Act shall, subject to the provisions of such
other Act under which such approval, permit or license was issued, be transferred in the
name of converted entity viz LLP.
Page 9 of 13

10. LLP in News
Notification of Conversion Provisions
Ministry has notified the conversion provisions of LLP Act and Rules provided under Section 55,
56 and 57 and Schedule II, III and IV w.e.f. 31st May 2009, making it possible for the existing
firms, Private and Unlisted Public Companies to get converted to Limited Liability Partnership
and to avail the benefits of this new form of business.
Amendment of LLP Act and Rules 2009
The First amendment in the Schedules of the LLP Act concerning conversion provisions notified
by the Ministry on 04th of June 2009, providing for appeals to be made to Company Law Board
till the constitution of Tribunal.
To check out the notifications, click here
Tax regime for LLP introduced
The Union Budget 2009-10 has introduced the Tax regime for Limited Liability Partnerships. As
per the Budget, LLP will be treated as Partnership Firms and will be taxed accordingly. In order
to check out the entire coverage, please click here
Page 10 of 13

11. Conversion Segment on Global Comparison
Facts LLP UK Singapore LLP US LLP Indian LLP
Conversion of Conversion is not Section 20 and Second Permits conversion Section 55 and
Firm permitted Schedule of the Act but does not require Second Schedule
provides for conversion consent of all of the Act deals
of existing Firm to LLP partners with conversion
of existing Firm to
LLP.
Conversion of Permits conversion Section 21 and Third Permits conversion Section 56 & 57
Company but require consent Schedule of the Act but does not require and Third
of all members provides for conversion consent of all Schedule of the
of existing Private members Act deals with
Companies to LLP. Conversion of
Companies to
LLP.
Gray Issues on LLP
Liability of Designated Partner:
Section 8 provide that the Designated Partners of the Limited Liability Partnership shall be responsible for all
the compliances of LLP provided under the LLP Act and LLP Agreement and in case of contravention of any
of the provision, the designated partner shall be liable for all penalties imposed on limited liability
partnership, which means in case of contravention of any provision e.g. in section 25 where every
Designated Partners and LLP would be liable in case of non filing of notice of cessation of any partner with
the registrar, the liability of the designated partner would be double including the liability of LLP for which also
the designated partner is liable as per Section 8(b)
Page 11 of 13

12. Recent Queries on LLP Club
Whether foreign LLPs will be governed by Indian laws? Also, whether dispute between the
partners can be adjudicated by arbitration?
What will be the treatment of reserves in case of conversion of company to LLP?
Whether I can form a LLP with a German national?
What is difference between Partner & Designated partner?
How do changes in shareholding happen in an LLP?
Can Trusts be a shareholder in the LLP?
What are the constitutional documents evidencing an LLP?
Can a foreign shareholder be introduced in an LLP are there any FEMA / other guidelines?
Is it advantageous for a foreign shareholder to be holding the shares in the LLP
Are there any succession provisions under the tax laws for creating an LLP/ What about
implications under other laws such as stamp duty, VAT etc.?
How will winding up of existing companies operate , are there any changes in Company
Law for enabling succession?
To check out their solutions, click here
Public Opinion
Our Poll of the week “Whether procedure of winding-up LLP should be easy from that of a
Company” was favored by 56% audience while 31% audience was favoring for more strict
provisions for winding up of LLP and in between these 13% audience remain constant for any
favor.
To count your vote on “Whether LLP should be allowed to merge with Company” log in to
www.LLPonline.in.
Our Offerings
Page 12 of 13

13. Our Team:
Anki t Si ng hi – 011- 40622208
Shi pr a Wadh wa- 011- 40622246
As st . Ma na ger , Cor po r a t e Af fai r s & Compli an ce s
Ass oci ate, C or por at e Affairs & C ompl i ances
e mai l: an ki t @i ndi acp . c om
e mail : s hi pr a@i ndi ac p. c om
Visit us at
From the house of
Corporate Professionals (India) Private Limited
D-28, South Extn. Part-I, New Delhi-110049,
Ph: 011-40622200; Fax: 011-40622201.
Email: info@indiacp.com & info@LLPonline.in
Our G amut o f Ser vi c es
INV E ST M ENT B ANK IN G • INDI A EN TR Y S ER V IC E S • M &A , C OR POR A TE CO MP LI ANC E S & DU E
DIL I GE NC E • C OR POR A T E TA XAT ION • SE C UR IT Y LAW ADV I SOR Y • AUD I T & AC COUN TIN G
Disclaimer:
This paper is a copyright of Corporate Professionals (India) Pvt. Ltd. The entire contents of this paper have been
developed on the basis of Limited Liability Partnership Act 2008 and the corresponding Laws in India. The author
and the company expressly disclaim all and any liability to any person who has read this paper, or otherwise, in
respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance
upon the contents of this paper.
Page 13 of 13