Partnership Firm to LLP Conversion
● Convert your partnership firm into an LLP with expert guidance.
● Complete online process, including obtaining DSC, DPIN, and filing LLP forms.
● Holistic support for license transfer and post-conversion legalities.
- Can a Partnership Be Converted into an LLP? - Overview
Converting a partnership firm into a Limited Liability Partnership (LLP) offers several advantages over the traditional partnership structure. Key benefits include:
● Limited Liability: Unlike a partnership, where partners are personally liable for business debts, an LLP ensures that partners’ personal assets are protected.
● Simplified Regulations: The strict and outdated regulations of the Indian Partnership Act of 1932 no longer apply to LLPs.
● Tax Benefits: LLPs can enjoy tax advantages compared to partnerships.
● No Audit Requirements: LLPs with a certain capital threshold do not require an audit, which reduces compliance costs.
● No Partner Cap: There is no limit on the number of partners in an LLP, unlike partnerships which can have restrictions.
● Flexible Capital Contribution: LLPs have no mandatory capital contribution requirements, providing flexibility to partners.
Converting a partnership to an LLP is a streamlined process with significant legal and financial advantages for business growth and risk mitigation.
- Conditions for Conversion of Partnership Firm into LLP
To convert a partnership firm into a Limited Liability Partnership (LLP), certain conditions need to be met, as outlined in Section 55 of the Limited Liability Partnership Act of 2008 and Schedule II of the Act. These include:
1. Existing Partners Only: Only the existing partners of the partnership can be part of the LLP. No new partners can be added, nor can any existing partner exit during the conversion process.
2. Partner Requirements:
o At least two partners must have a Designated Partner Identification Number (DPIN).
o All partners must possess a current Digital Signature Certificate (DSC).
3. Registered Partnership: The partnership firm to be converted must be registered under the Indian Partnership Act of 1932.
4. Approval of All Partners: All partners must agree to the conversion and provide their consent.
5. Same Partners in LLP: The partners of the LLP after conversion must be the same as those in the original partnership firm.
6. Post-Conversion Exit: After the conversion, any partner may choose to leave the LLP at their discretion.
7. Director Identification Number (DIN): All Designated Partners must obtain a Director Identification Number (DIN) or DPIN.
These conditions ensure a smooth transition from a partnership to an LLP while maintaining regulatory compliance.
Differences Between a Partnership and an LLP
Basis
Partnership
LLP (Limited Liability Partnership)
- Benefits of Converting to a Limited Liability Partnership (LLP):
1. Separate Legal Entity: An LLP is a distinct legal entity, offering perpetual succession and the ability to sue or be sued in its own name.
2. Flexibility in Ownership: Partners can be easily inducted or removed, and ownership can be transferred with ease.
3. Suitable for Small Businesses: LLPs with a capital under ₹25 lakhs and turnover below ₹40 lakhs don’t require formal audits, making it ideal for small businesses and startups.
4. Property Ownership: As a separate entity, an LLP can own property, distinct from its partners.
5. No Distinction Between Owners and Managers: Unlike private companies, LLP partners manage and own the business, providing greater control but limiting venture capital investment.
LLPs offer limited liability, operational flexibility, and simplicity, making them a favorable option for smaller businesses.
- Procedure for Conversion of Firm into LLP:
1. Obtain Digital Signature Certificate (DSC): All designated partners must obtain a Digital Signature Certificate for filing online documents.
2. Apply for Director Identification Number (DIN): Each designated partner must apply for a Director Identification Number (DIN) or Designated Partner Identification Number (DPIN).
3. Name Approval: Choose a suitable name for the LLP and get approval from the Ministry of Corporate Affairs (MCA).
4. Incorporation of LLP: Submit the necessary documents for the incorporation of the LLP, including the name approval and details of the partners.
5. File LLP Agreement: Draft and file the LLP agreement, which outlines the rights, duties, and responsibilities of the partners, and submit it with the relevant authorities.
GTS offers a seamless and hassle-free process for LLP registration, ensuring all steps are efficiently managed.
- LLP Conversion Notice:
When a partnership firm converts into a Limited Liability Partnership (LLP), the firm is required to notify all official communications for 12 months following the conversion. This notice should include the following details:
● A declaration that the firm has converted from a partnership to an LLP.
● The date of registration of the LLP.
● The name and registration number (if applicable) of the original partnership firm that was converted.
Failure to include this information in official communications within the prescribed period can lead to penalties:
● Minimum fine: ₹10,000
● Maximum fine: ₹1,00,000
● If the violation continues, an additional fine of ₹50 per day may be imposed, with a maximum of ₹500 per day.
● This requirement ensures transparency and legal compliance after the conversion process.
- Documents Required for Conversion of Partnership Firm into LLP
When converting a partnership firm into a Limited Liability Partnership (LLP), the following documents are required:
To Be Submitted By Partners:
1. PAN Card or Passport (for all partners; foreign nationals & NRIs must provide passport)
2. Aadhar Card/Voter’s ID/Passport/Driver’s License (for Indian residents)
3. Latest Utility Bill: Bank statement, telephone/mobile bill, or electricity/gas bill (address proof)
4. Passport-sized Photograph (of each partner)
5. Specimen Signature: A blank document with signatures of the partners
For Registered Office:
1. Utility Bill: Bank statement, telephone/mobile bill, or electricity/gas bill (address proof for the office)
2. Notarized Rental Agreement (in English) for office premises
3. No-objection Certificate from the property owner (for rented premises)
4. Sale Deed/Property Deed (in English) if the office property is owned by the firm
These documents ensure legal compliance for the conversion process, confirming the identity of partners and the registered office details of the LLP.
- Steps for Conversion of Partnership Firm into LLP
Converting a partnership firm into a Limited Liability Partnership (LLP) offers the flexibility and tax benefits of a partnership, while also providing limited liability protection for the partners. The following are the key steps to convert a partnership firm into an LLP:
1. Obtain DSC (Digital Signature Certificate) and DIN (Director Identification Number): The designated partners of the partnership firm must obtain a Digital Signature Certificate (DSC) and a Director Identification Number (DIN) from the Ministry of Corporate Affairs (MCA).
2. Name Reservation: The partners need to apply for the name reservation for the proposed LLP through the RUN-LLP form on the MCA portal. The name should be unique and not similar to any already registered LLP.
3. Drafting the LLP Agreement: A comprehensive LLP agreement must be drafted, outlining the operational structure, terms, and conditions of the business. This agreement should be signed by all partners and comply with the provisions of the Limited Liability Partnership Act of 2008.
4. Filing of Form FiLLiP: Form FiLLiP (Form for Incorporation of LLP) should be filed to notify the MCA about the conversion of the partnership firm into an LLP. This form serves as the application for the registration of the LLP.
5. Filing of Form 3: After the LLP is incorporated, the partners must file Form 3 with the Registrar of Companies (RoC). This form includes the LLP agreement and other necessary documents related to the firm.
Once these steps are completed, the conversion process from a partnership firm to an LLP is successfully finalized.
- Partners' Liability Before Conversion
Before a partnership firm is converted into a Limited Liability Partnership (LLP), the liability of the partners is joint and several, which means:
1. Joint and Several Liability: The partners are personally liable for the debts and obligations of the firm. If the partnership firm cannot meet its financial obligations, the partners are responsible for paying off creditors using their personal assets.
2. After Conversion to LLP: Once the partnership is converted into an LLP, the liability of the partners changes. The partners’ liability becomes limited to the amount they contribute to the capital of the LLP, providing them protection from personal asset exposure beyond their capital contribution.
In summary, before the conversion, partners are personally responsible for the firm’s debts, but after conversion to an LLP, their liability is restricted to their capital contribution to the LLP.
- Effect of Registration of a Partnership Firm as an LLP
When a partnership firm is converted and registered as a Limited Liability Partnership (LLP), the following effects take place:
1. Dissolution of the Partnership: The partnership firm is considered dissolved once the LLP is registered. However, the assets and liabilities of the partnership are transferred to the LLP.
2. Uninterrupted Operations: The business operations of the partnership firm can continue seamlessly under the new LLP structure. There is no disruption in the ongoing activities.
3. Compliance with LLP Act: The partners of the original partnership firm become the designated partners of the LLP. They must now adhere to the requirements of the LLP Act, 2008.
4. Separate Legal Entity: The LLP is recognized as a separate legal entity from its partners, meaning it has its own legal identity and can own property, enter into contracts, and sue or be sued in its name.
5. Tax Benefits: The LLP structure offers various tax benefits, such as pass-through taxation, where the LLP itself is not taxed, and profits are passed on to the partners and taxed at their individual rates.
6. Ongoing Legal Actions: Any legal actions (suits or claims) that were in progress against the partnership firm will continue against the newly formed LLP. Any judgments or rulings related to the firm can be enforced against the LLP.
7. Contracts and Agreements: All existing contracts and arrangements that the partnership firm was a part of will continue to remain valid with the LLP as the party to those contracts.
8. Transfer of Powers and Rights: Any powers, authority, or assignments granted to the partnership firm are automatically transferred to the LLP. The LLP will be treated as though it had been the original recipient of these powers or grants.
In essence, the registration of the partnership firm as an LLP allows the firm to retain continuity, protect partners with limited liability, and gain access to certain legal and tax advantages, all while maintaining its previous commitments and agreements.
- Why Choose GTS for LLP Registration?
GTS simplifies the process of registering a Limited Liability Partnership (LLP) in India with a hassle-free approach. They provide end-to-end assistance to ensure that your LLP registration is completed swiftly and efficiently, complying with the latest updates from the Ministry of Corporate Affairs (MCA).
Key Services Provided by GTS:
1. Digital Signature Certificate (DSC) for one director and Director Identification Number (DIN) for up to three directors.
2. Drafting of Memorandum of Association (MoA) and Articles of Association (AoA).
3. Handling registration fees and stamp duty.
4. Issuing the Company Incorporation Certificate.
Additional Support Includes:
1. Free consultation followed by additional meetings to address concerns.
2. Full assistance in opening a current bank account.
3. Regular updates on ROC compliances to ensure timely filings.
4. One-year online accounting software to help manage your LLP’s finances.
5. A master file containing all documents needed for incorporation.
6. Dedicated service manager to handle your queries throughout the process.
7. Assistance in obtaining a separate PAN card for the LLP and new GST registration.
8. A zero balance current account for your LLP.
GTS makes the LLP registration process streamlined, ensuring compliance and providing ongoing support to help your business succeed under the LLP framework.
- FAQs
To convert a partnership firm into an LLP, follow these key steps:
1. Obtain Digital Signatures (DSC) for all partners.
2. Apply for Director Identification Number (DIN) for all partners.
3. Submit Name Reservation (RUN-LLP Form) to the MCA for approval.
4. File Form FiLLiP for the conversion application.
5. Draft and Register the LLP Agreement with the MCA.
6. Obtain the Certificate of Incorporation to officially form the LLP.
These steps ensure a smooth conversion of a partnership firm into a Limited Liability Partnership (LLP).
Yes, both registered and unregistered partnership firms can be converted into an LLP. The key requirement is that the partnership must exist as a legal entity, but it does not have to be registered with the government to be eligible for conversion into an LLP.
Yes, obtaining the consent of all partners is one of the most important prerequisites for converting a partnership firm into an LLP. All partners must agree to the conversion, as the conversion process involves transferring the firm’s assets, liabilities, and obligations to the newly formed LLP. Without unanimous consent, the conversion cannot proceed.
Yes, drafting an LLP agreement that outlines the terms and conditions of the partnership is one of the main requirements for converting a partnership firm into an LLP. This agreement defines the rights, responsibilities, and liabilities of the partners in the LLP. It must be in compliance with the provisions of the Limited Liability Partnership Act, 2008, and needs to be filed with the Registrar of Companies (RoC) as part of the conversion process.
The following individuals cannot be partners in an LLP:
1. Minors
2. Undischarged insolvents
3. Persons of unsound mind
4. Those convicted of dishonesty or fraud
5. Persons disqualified from being directors under the Companies Act, 2013
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