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Conversion of Partnership Firm Into LLP
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Can a Partnership Be Converted into LLP - Overview
In comparison to a standard partnership, a limited liability partnership (LLP) can be shown to be a far better business structure. Personal liabilities have an impact on partnerships, and LLPs do away with the Indian Partnership Act of 1932’s overbearing requirements. In addition, there are tax advantages, no audit obligations below a specific capital threshold, no partner cap, and no capital contribution restrictions. Read through to know more about conversion of firm into LLP.
Conditions For Conversion of Partnership Firm into LLP
- According to Section 55 of the Limited Liability Partnership Act of 2008 read with Schedule II of the Act, a partnership can partnership be converted into llp.
- There cannot be any new partners or for existing partners to stop being partners during the application process since all partners of the firm must be partners of the LLP.
- Before submitting such an application, at least two partners must have DPINs and all Partners must possess a current Digital Signature Certificate (DSC).
- The Partnership Act of 1932 requires that the partnership entity being converted be registered.
- The approval of all partners is required.
- The partners of the LLP must be the same as those of the partnership firm.
- After the conversion is finished, any partner who wants to leave the LLP can do so.
- All Designated Partners must receive a Director Identification Number (DIN) or Designated Partner Identification Number (DPIN).
Key Differences Between a Partnership and an LLP
Here is a table that explains the key differences between a partnership and an LLP:
| Basis | Partnership | LLP |
|---|---|---|
| Separate Legal Entity | No. | Yes. |
| Liability | Unlimited. Personal assets of the partners are also liable. | Limited to the extent of their capital contribution. |
| Books of Accounts | Not mandatory. | Should be prepared according to the provisions of the LLP Act. |
| Number of Members | Maximum 20. In the case of a banking business, the maximum number is 10. | No limit on the maximum number of partners. |
| Digital Signature Certificate (DSC) | No such requirement. | All designated partners of the LLP should have a Digital Signature which is a prerequisite for e-filing. |
Benefits of a Limited Liability Partnership
There are numerous benefits to LLP which will give clarity on why conversion of partnership firm into LLP benefits the individual:
Separate Legal Entity:
- An LLP is a separate legal entity from its partners. Each partner can sue the other in case a situation arises.
- It has an uninterrupted existence that follows perpetual succession, i.e, the partners might leave, but the business will remain. A term of dissolution has to be mutually agreed upon by the firm, to dissolve.
Flexible Agreement:
Transferring the ownership of LLP is simple. A person can be quickly inducted in as a designated partner, and the ownership will switch to them.
Suitable For Small Business:
- LLPs with a capital of less than 25 lakhs and turnover less than 40 lakhs per year, do not require any formal audits. It makes registering as LLP beneficial for small businesses and startups.
- An LLP can own or acquire property because it is recognized as a juristic person. Partners of an LLP cannot claim the property as theirs.
No Owner /Manager Distinction:
An LLP has partners, who own and manage the business. This is different from a private limited company, whose directors may be different from shareholders. For this reason, venture capitalists do not invest in the LLP structure.
Documents Required for Conversion of Partnership Firm Into LLP
When one plan to convert partnership to LLP, there are a few documents one must carry, here is the list:
To Be Submitted By Partners
- Scanned copy of PAN Card or passport (Foreign Nationals & NRIs)
- Scanned copy of Aadhar Card/ Voter’s ID/Passport/Driver’s License
- Scanned copy of latest bank statement/telephone/mobile bill or electricity/gas bill
- Scanned passport-sized photograph Specimen signature (blank document with signature [partners only])
- Note: Any one of the partners must self-attest the first three documents. In the case of foreign nationals and NRIs, all the documents must be notarized (if currently in India or a non-Commonwealth country) or apostilled (if in a Commonwealth country).
For Registered Office
- Scanned copy of the latest bank statement/telephone/mobile bill, or electricity or gas Bill
- Scanned copy of the notarised rental agreement in English
- Scanned copy of No-objection certificate from the property owner
- Scanned copy of sale deed/property deed in English (in case of owned property)
Steps for Conversion of Partnership Firm into LLP
The process of converting a partnership company into a LLP preserves the adaptability and financial advantages of a partnership while giving the partners limited liability protection. The following are the procedures needed to change a joint company into an LLP:
- Obtain DSC and DIN: The designated partners of the partnership firm need to obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN) from the Ministry of Corporate Affairs (MCA)
- Name Reservation: The partners must apply for a name reservation for the proposed LLP with the MCA. submit the RUN-LLP form. The name of the form should be unique and not similar to any other registered LLP company
- Drafting LLP Agreement: An agreement outlining the overall functioning of the LLP should be drafted and undersigned by all the partners. It involves all the terms and conditions of the business. It is also crucial that the agreement should comply with the provisions provided under the Limited Liability Act of 2008
- Filing of Form FiLLiP: The application and declaration for the conversion of partnership company into LLP is intimated to the MCA on this application
- Filing of Form 3: The partners must file Form 3 with the RoC, along with the LLP agreement and other necessary documents, to complete the registration process.
Partners' Liability Before Conversion
The members of a partnership firm are jointly and severally responsible for the bills and responsibilities of the company prior to the conversion of the firm into an LLP. This means that the partners must use their own assets to pay off creditors’ claims if the partnership is unable to settle its obligations. The partners’ liability is, however, constrained to the sum they give to the capital of the LLP following the conversion.
Effect of Registration
- The partnership company is assumed to have been disbanded following the registration of the LLP, and the assets and obligations of the partnership pass to the LLP
- The partnership’s operations can proceed uninterruptedly under the LLP
- The LLP Act’s requirements must be followed by the partners of the partnership company, who are now its named partners
- The LLP is a separate legal entity and has perpetual succession, which means that the LLP continues to exist even if the partners change
- The LLP is also eligible for various tax benefits available to LLPs, such as the pass-through taxation system
- The LLP may be subject to all legal actions that were ongoing against the company
- Any ruling or verdict, whether favourable to the company or unfavourable, may be pursued against the LLP
- All current arrangements and contracts to which the company was a party shall remain in effect with the LLP as a party
- Every current assignment made by the company or power granted to the company must be treated as though it had been given to the LLP.
Procedure for Conversion of Firm into LLP
Here is the process to register LLP in India. Dreamunicus provides a seamless and hassle-free process and one can check here to know the quick and detailed process to register an LLP.
Step 1: Obtain Digital Signature Certificate (DSC)
Step 2: Apply for Director Identification Number (DIN)
Step 3: Name Approval
Step 4: Incorporation of LLP
Step 5: File Limited Liability Partnership (LLP) Agreement
Why Dreamunicus?
With Dreamunicus, registering an LLP is one of the easiest processes in India. We make the entire compliance procedure simple and provide our best efforts to complete the process as early as possible. The Ministry of Corporate Affairs comes up with updates to the LLP process and Dreamunicus takes care of them for you.
- DSC for one director and DIN for up to three directors
- Drafting of MoA & AoA
- Registration fees and stamp duty
- Company Incorporation Certificate
We also provide assistance with:
- Free consultation, followed by subsequent meetings to clear every concern you may face.
- Complete support on opening a current bank account
- Comprehensive and on-time updates on ROC compliances.
- Online accounting software valid for one year.
- A master file that contains all the documents needed to file the incorporation.
- A dedicated service manager is present at all times.
- Being a separate legal entity from the existing partnership firm, LLP will have its own pan card, and a new/separate GST Registration on the name of LLP.
- You will also get a zero balance current account!
Frequently Asked Questions (Faq)
- Get digital signatures of all partners
- Apply for DIN for all the partners
- Submit the application with RUN-LLP Form on the MCA website
- Submit an application by filling out the form Fillip for the conversion
- Register LLP agreement with the MCA website
- Obtain a Certificate of Incorporation for your LLP.
No! registered and unregistered Partnership Firms can be converted into LLP.
The statement of Account and Solvency from the foreign LLP should be submitted on Form 8. After the first six months of the fiscal year have ended, it must be completed within 30 days. The amount due is ₹ 1000.
The Registry of Companies (RoC) must receive a Yearly Return and Statement of Earnings from an LLC each year.
A partner is a member of an LLP, while a designated partner is responsible for compliance with the LLP Act and has additional legal obligations, such as maintaining books of accounts and filing documents with the RoC.
The main advantage of converting a partnership firm to LLP is that the partners' liability becomes limited, which means that they are not personally liable for the debts and obligations of the LLP beyond the amount they have contributed to the LLP's capital.
The result of converting a partnership company into an LLP is the dissolution of the partnership and the transfer of the partnership's assets and obligations to the LLP. The LLP's appointed members are the partnership's partners.
One of the most important prerequisites for converting a partnership to an LLP is obtaining the consent of all partners.
The creation of an LLP document outlining the terms and conditions of the partnership is one of the key prerequisites for converting a partnership to an LLP.
The fees for conversion of partnership firm into LLP depend on various factors, such as the authorised capital, state in which the LLP is registered, and professional fees charged by the consultant assisting with the conversion.
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