This article gives general information only. It is not legal advice, does not create an advocate-client relationship, and is not an advertisement or solicitation.
Key takeaways
- A registered or unregistered partnership firm can become a Limited Liability Partnership (LLP) under Section 55 and the Second Schedule of the Limited Liability Partnership Act, 2008.
- The LLP must have all the partners of the firm and no one else.
- Assets, contracts and liabilities of the firm pass to the LLP, but partners stay answerable for the firm's old liabilities.
- The conversion is a legal event with follow-up notices, not a name change on a letterhead.
In this article
Why firms look at conversion
Many family businesses and professional practices in Kerala start as partnerships. A partnership is simple to form, but each partner is personally liable for the firm's debts, and the firm is not a separate legal person. As the business takes bank loans, signs larger contracts or brings in the next generation, partners often ask whether they can keep the working style of a partnership but limit their personal exposure.
An LLP is the closest next step. It is a body corporate with its own legal identity, perpetual succession and a partnership style of management. Each partner's liability is generally limited to the agreed contribution, apart from liability for the partner's own wrongful acts. Our earlier note on LLP versus private limited company covers the wider comparison, and this article stays with the conversion itself.
What the LLP Act requires
Section 55 of the LLP Act allows a firm to convert into an LLP in the manner set out in the Second Schedule. The core requirements are these:
First, the partners of the new LLP must be all the partners of the firm, and nobody else. If a new person is to join, or an existing partner is to leave, the cleaner course is to settle that before the conversion, so that the application matches the firm's records exactly.
Second, all partners of the firm must make a statement to the Registrar on the MCA portal, giving the firm's name, its registration details under the Indian Partnership Act, 1932 if it was registered, and the LLP incorporation documents. The Registrar then issues a certificate of registration stating the date from which the LLP exists.
Third, from that date the property, rights, contracts and undertaking of the firm vest in the LLP, and the firm is treated as dissolved. Ongoing proceedings, agreements and approvals continue in favour of or against the LLP.
Old liabilities do not disappear
The most common misunderstanding is that conversion wipes the slate clean. It does not. The Second Schedule keeps the partners of the former firm jointly and severally liable, along with the LLP, for liabilities and obligations of the firm that arose before the conversion. A partner who pays such a liability is entitled to be indemnified by the LLP, unless the partners agree otherwise.
| Point | Partnership firm | Converted LLP |
|---|---|---|
| Legal identity | Not separate from its partners | Separate body corporate |
| Liability for new debts | Partners personally liable | Generally limited to contribution |
| Liability for pre-conversion debts | Partners personally liable | Partners and LLP jointly and severally liable |
| Succession | Depends on the deed | Perpetual succession |
| Governing document | Partnership deed | LLP agreement |
What to do after the certificate
The Second Schedule expects the LLP to inform the Registrar of Firms where the firm was registered, and to inform the authorities concerned about registered property. Beyond this, business practice calls for updating the bank, tax registrations, licences, trade contracts, employee records and the trademark records if the firm owns marks. Our notes on partnership firm compliance and on what a partnership deed should contain help identify what the firm already holds.
For a period of twelve months after registration, the LLP's official correspondence must state that it was converted from a firm, with the firm's name and registration number if any. A conversion that skips this step risks a statutory penalty.
Two practical cautions apply. Immovable property that stands in the firm's name needs the vesting to be reflected in the relevant records, and the tax and stamp consequences should be checked against the current provisions before filing, since they depend on the facts of each firm.
Common questions
Can a new partner join during conversion?
The Second Schedule requires the LLP's partners to be all the partners of the firm and no one else. A new partner is therefore admitted before or after conversion, not as part of it.
Is the firm closed separately?
On registration, the firm is treated as dissolved and its property and liabilities vest in the LLP. The LLP still informs the Registrar of Firms so that the firm's registration record is updated.
Does the LLP need a new name?
The LLP name must be approved by the Registrar and must carry the words Limited Liability Partnership or LLP. Whether the former firm name can be kept depends on availability and the rules on names.
Questions on a specific matter depend on the facts, and advice should be taken before acting.