Continuity of business requirement bars transfer of unabsorbed losses on company-to-LLP conversion if continuity test fails.

On business reorganisation or conversion into a limited liability partnership, unabsorbed current losses of the predecessor are deemed unabsorbed preceding-year losses of the successor and are governed by the aggregation provisions for ordinary and specified special sources. Those deeming rules do not apply if the successor fails the continuity of business test, if conversion conditions are unmet, or where shareholding of a sole proprietor or participant falls below fifty per cent within five years; failure to satisfy these conditions within five financial years triggers rectification of total income as if the deeming provisions had not applied.

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