• Changing of company into an LLP

A HUF 'xyz' is an investor (major shareholder) in Company 'ABC'.
On conversion of a company 'ABC' to a LLP -

1. Can an HUF 'xyz' be a member of the newly-formed LLP?
2. If yes, please state the sections and law.
3. If no, what can be the solution to this problem?

If HUF 'xyz' cannot be a member of newly-converted LLP than there are 2 options i'm left with -

1. Either sell the investments held by HUF 'xyz' to it's members 'x', 'y' and 'z'. (But we don't have that kind of money).

2. Or dissolve the HUF (partition of HUF) and distribute the investments (shares of Company 'ABC') to it's member.

Is their any 3rd option? More suitable, viable and feasible option.
Asked 7 years ago in Business Law

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4 Answers

It is hereby clarified that a HUF or its Karta cannot become partner or designated partner in LLP.

General Circular No. 2/2016 - Ministry Of Corporate Affairs

2) as per section 5 of LLP act only individual or corporate can be member of LLP

3) HUF cannot be regarded as body corporate hence cannot be member of LLP

4) dissolution of HUF is best option

Ajay Sethi
Advocate, Mumbai
96808 Answers
7811 Consultations

HUF has no legal entity except under income tax act. a manager/karta of the HUF can be added as a partner in LLP. section 4 of the Indian partnership act says that a partnership is formed by contract not by status. so either a living person or a legal entity can be a member of partnership.

Shivendra Pratap Singh
Advocate, Lucknow
5127 Answers
78 Consultations

in your case karta/manager of the HUF can join as a partner of LLP.

Shivendra Pratap Singh
Advocate, Lucknow
5127 Answers
78 Consultations

As per General circular 2/2016 dated 15.01.2016 by Ministry of Corporate affairs, in para 2 of general circular 13/2013, it was clarified that as per section 5 of LLP act, 2008, only an individual or a body corporate can become a partner of the LLP. A HUF cannot be treated as corporate body to become a partner of LLP as per the said act.

Since the HUF cannot become partner of the newly formed LLP you may think of any other alternative including dissolving the HUF, and the individuals can become partner of LLP.

T Kalaiselvan
Advocate, Vellore
87007 Answers
2335 Consultations

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