Question 5 (a)

Conversion of PQR, a partnership firm, into an LLP: procedure and effect

12 marks

Time to write
About 24 minutes
Topic
Conversion into LLP
Notes
Crux notes

Question

Question 5 (a) · 12 marks

PQR, a partnership firm has three partner wants to convert itself into an LLP so as to limit their liability. Explain the procedure for, and the effect of, conversion of a partnership into an LLP under limited liability Partnership Act, 2008.

Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

24 minfor 12 marks

Read from the question

  • procedureA process: the steps in order, one heading each.

Write it in this order

  1. Read; underline the asks; jot your points 2 min
  2. 1 Rule and meaning of conversion 2 marks 3 min
  3. 2 Procedure: eligibility, statements, registration, refusal 5 marks 9 min
  4. 3 Effect of registration 3 marks 5 min
  5. 4 Application to PQR and conclusion 2 marks 3 min
  6. Check: every ask answered, key terms underlined 2 min

Short on time? Trim steps 1–4 evenly rather than skip one: each is capped at its own marks.

Try it first. About 24 minutes for 12 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Rule. Under section 55 of the LLP Act, 2008 a firm may convert into an LLP by complying with the Second Schedule. Conversion means the transfer of the firm's property, assets, interests, rights, privileges, liabilities, obligations and undertaking to the LLP (paras 1–2).

Picture itConversion of PQR, a partnership firm, into an LLP: procedure and effect

1All three partners of the firm sign the conversion together—and nobody else.

EligibilityThe partners of the proposed LLP comprise all the partners of the firm and no one else.

2The new LLP certificate goes up on the wall; the firm's old board lies on the floor.

Effect of registrationThere is an LLP by the name specified in the certificate; the firm is deemed to be dissolved.

3An old bill from the firm's days still reaches the partners themselves.

Partners' existing liabilitiesEach remains personally liable, jointly and severally with the LLP, for the firm's liabilities and obligations incurred before the conversion.

Procedure.

  1. Eligibility (para 3). A firm may apply to convert if, and only if, the partners of the proposed LLP comprise all the partners of the firm and no one else.
  2. Statements to be filed (para 4). The firm files with the Registrar (a) a statement by all its partners, in the prescribed form and with the prescribed fee, giving the firm's name and registration number (if any) and the date of its registration under the Indian Partnership Act, 1932 or any other law; and (b) the incorporation document and the statement referred to in section 11.
  3. Registration (para 5). On receiving these documents the Registrar, subject to the Act, registers them and issues a certificate of registration stating that the LLP is registered on and from the date specified in it. Within fifteen days of registration the LLP must inform the Registrar of Firms with which the firm was registered under the Indian Partnership Act, 1932 (if it was registered) of the conversion and of its particulars.
  4. Refusal (para 6). The Registrar may refuse to register if he is not satisfied with the particulars furnished, subject to an appeal to the Tribunal; he may also require the documents to be verified as he thinks fit.

Partners' existing liabilities. Conversion does not release the partners of the former firm: each remains personally liable, jointly and severally with the LLP, for the firm's liabilities and obligations incurred before the conversion or arising from a contract made before it (Second Schedule, para 16).

Effect of registration (para 7): on and from the date in the certificate,

    1. there is an LLP by the name specified in the certificate;
    1. all the firm's property, tangible and intangible, and all its assets, interests, rights, privileges, liabilities and obligations, and the whole of its undertaking, are transferred to and vest in the LLP without further assurance, act or deed; and
    1. the firm is deemed to be dissolved and, if it was registered under the Indian Partnership Act, 1932, removed from the records kept under that Act.

Application to PQR. PQR qualifies only if all three of its partners, and no one else, become the partners of the LLP. The three partners file the statement signed by all of them with the incorporation document and the section 11 statement; once the Registrar issues the certificate of registration, PQR's whole business vests in the LLP, the firm is deemed dissolved, and the business is thereafter carried on by a body corporate, the LLP, whose obligations are its own.

Conclusion. PQR can convert into an LLP by the Second Schedule procedure; on registration the LLP takes over the firm's entire undertaking and the firm ceases to exist.

Where the 12 marks sit

#ComponentMarks
1Rule and meaning of conversion2
2Procedure: eligibility, statements, registration, refusal5
3Effect of registration3
4Application to PQR and conclusion2
Total12
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