Forms of Business and reason for Conversion
Public limited company is one of the popular and well known forms of business structure. Besides Company various other business form is prevalent in India like proprietorship, HUF, Firm, LLP etc. Although when considered from the prospective of legal entity and perpetual succession as a feature of form of business after Company, formation of Limited Liability Partnership (LLP) is considered to be apt. Reason being LLP provides the status of a body corporate with less compliance and limited management obstacles.
In the current scenario, some businessman already running their business through companies thinks it fit to convert its Company into Limited Liability Partnership due to below given reasons:
- Regulatory authorities are gradually becoming stricter by introducing new corporate governance practice for Companies as compared to private company due to increased stakeholder interest
- Increasing penalties and imprisonment for non-compliance of provisions
- To retain control over business by few people
- Easy management
- Reduction of extra compliance as applicable on Companies
- More emphasis and focus on growth of business
- Legal Compliance Cost Saving
Concept of Public Limited Company
A public limited company can be further categorised into unlisted public company and listed public company. The basic difference between these two categories is that shares of unlisted public are not listed on any stock exchange whereas listed company’s share are listed on stock exchange, further being listed compliance of listed companies increase manifold comparative to unlisted public company.
Only unlisted public company is allowed to get converted into LLP by following provisions of LLP Act, 2008. The basic difference between these Unlisted Public Company and Listed Public Company is that shares of unlisted public are not listed on any stock exchange whereas listed company’s share are listed on stock exchange, further being listed compliance of listed companies increase manifold comparative to unlisted public company.
In this article we will discuss for conversion of Unlisted Public Company into LLP. To read for conversion of Private Company to LLP click here.
What is Limited Liability Partnership?
A partnership which got registered itself under The Limited Liability Partnership Act, 2008 whereby partners intends to carry an objective clearly mentioned through an agreement known as Limited Liability Partnership Agreement. Below given are some features of LLP as provided under LLP Act, 2008.
Status of body corporate: LLP is a body corporate which enjoys status of separate legal entity and perpetual succession meaning thereby partners of LLP are considered separate from LLP and partners may come and go but LLP will remains in existence.
Designated Partners and Partners: LLP shall have at least two designated partners who are individuals and at least one should be resident in India, Body corporates can also be members of LLP then nominee of such body corporates will be considered as designated partner.
LLP Agreement: All the mutual rights and liabilities of partners will be governed by LLP agreement including its objectives, duties, manner of induction and cessation, termination and other important clause.
Partner Status: Every Partner of LLP is agent of LLP for the purpose of carrying business of LLP
Liability: Partners are not held personally liable directly or indirectly solely for the reason of being partners, unless they have acted without authority and breached clauses of partnership by wrongful act.
Difference in LLP and Public Company
|Particular||Limited Liability Partnership||Public Company|
|Act||LLP is governed by LLP Act, 2008||Companies are governed by Companies Act,2013|
|Primary Document||LLP agreement||Memorandum of Association Article of Association|
|Name||Name shall have word “Limited Liability Partnership”||Name shall have word “Public Limited Company”|
|Minimum number of partners/ directors||Minimum 2 Designated Partners||Minimum 3 Directors|
|Maximum number of partners/members||No limit on maximum partners||No maximum limited|
|Books of Accounts||Within 6 months from end of financial year, prepare statement of asset & liability and shall be signed by designated partners||Within 6 months of end of financial year, prepare Balance Sheet and Profit and loss account to be adopted by members of the Company at Annual General Meeting|
|Annual Return||File E Form 11 within 60 days from end of financial year||File E Form MGT 7 within 60 days from the date of adoption of accounts at Annual General Meeting. AGM should be held prior to 30th September|
|Statement of Accounts||File E Form 8 within 6 months of closure of financial year||File E form AOC 4 within 30 days from the date of adoption of accounts at Annual General Meeting AGM should be held prior to 30th September|
|Compliance||Lesser Compliance in comparison to Public Company||Various Compliance|
Process to convert Unlisted Public Company into LLP
Section 57 of Chapter X and Fourth schedule of LLP Act, 2008 mentions the provisions for conversion of Unlisted Public Company into LLP.
An unlisted public company may apply to convert itself into LLP in accordance with fourth schedule after following below given procedure:
- Any director or person authorised by the Board will dispatch a notice to call for Board Meeting. Notice shall be give as per section 173 of Companies Act, 2013 read with secretarial standard 1 on Board Meetings.
- Conduct Board Meeting and analyse the proposal of conversion of Company to LLP.
- Post approval , dispatch notices for calling an Extra Ordinary General Meeting/ Annual General Meeting (AGM) to all the members in accordance with provisions section 101 of Companies Act,2013 read with secretarial standard 2 on General Meetings
- Accord approval of Members through unanimous Resolution at Extra Ordinary General Meeting/Annual General Meeting (AGM) for conversion of Company to LLP.
- File E form MGT-14 to submit special resolution with the Registrar of Companies
- Make an application in Form RUN_LLP with Central Registration Centre. After approval of name apply for incorporation of LLP in Form FiLLiP.Alternatively, Company can directly file form FiLLiP as it also gives option of name reservation in the form along with incorporation.
- After approval, file E form 3 within 30 days for providing information of LLP agreement with the Central Registration Centre.
- File E Form 18 for application for conversion and filing statement for conversion of a Company into LLP.
- After approval of incorporation and Form 18, E form 14, required to be filed within 15 days for intimating the Registrar of Firms about conversion of Company into LLP.
Conditions for Conversion
- All shareholders of the Company should become partners of LLP and no else cannot be partner at the time of application.
- There should be no security interest in its assets subsisting or in force at time of conversion application.
- All applicable clearances, approvals and permissions for conversion of the Company into LLP to be obtained.
- Consent of all creditors has been obtained.
- Provision with respect to submission of returns and annual accounts under Companies Act,2013 should be complied.
Legal Aspects of Conversion
- After conversion Company shall be deemed to dissolved and removed from the records of the Registrar of Companies
- All property, asset, liability, interest, rights , privileges, obligations of the Company will be transferred to the LLP.
- All proceeding pending against the Company will continue against the LLP.
- Any conviction, order, judgment, ruling of any court, tribunal or any other authority in favour or against the Company may be enforced by or against LLP.
- LLP will be deemed to be a party of any agreement which was entered into by Company initially.
- Every contract of employment shall continue to remain in force after conversion into LLP.
- If Company is appointed anywhere for some role or capacity it will continue to remain with LLP as if LLP was appointed for such role.
- Every director of the Company will remain personally liable for the acts conducted prior to the conversion of Company into LLP.
- Any approval or licence issued in the name of the Company will remain effective and valid for the LLP post conversion subject to the any other provision prescribed by authority permitting such approval or licence.
- Once Company is converted into LLP, within 14 days of conversion till a period of 12 month, LLP should mention in its every official correspondence, a statement that it has been converted from Company to LLP from its conversion date, name and CIN of Company
Any LLP which contravenes this provision will be punishable with fine not less than Rs.10,000 extended upto Rs. 1,00,000 with additional fine of Rs. 500 per day till the date default subsist.
Points to Remember
- Change in Sign Board, Letter head, stationary and other items where old name as Company used to be displayed
- Application to update name in PAN.
- Intimation and application to other authorities where Company is registered i.e. GST, EPF, ESI etc.
- Intimation to various suppliers and parties with whom Company has business.
- Intimation to banks where Company is maintaining bank accounts.