Home > Partnership Firm Into LLP
The conversion of a Partnership Firm into a Limited Liability Partnership (LLP) offers several advantages, including limited liability protection, tax benefits, and streamlined compliance.
Startupism, a trusted partner, ensures a seamless transition by providing expert guidance, minimizing hassles, and saving time and effort. Choose Startupism for a hassle-free conversion and unlock the benefits of an LLP structure.
When considering the transformation of a partnership into a more advantageous business structure, the limited liability partnership (LLP) stands out as an appealing choice. Unlike traditional partnerships burdened by personal liabilities and the stringent regulations of the Indian Partnership Act of 1932, LLPs offer a more flexible alternative.
Additionally, they come with tax benefits, exemptions from audits below a certain capital threshold, no partner limit, and no restrictions on capital contributions. Explore the process of converting your firm into an LLP below.
In accordance with Section 55 of the Limited Liability Partnership Act of 2008, read alongside Schedule II of the Act, a partnership can indeed undergo conversion into an LLP. During the application process, it’s vital that no new partners are added, and existing partners must remain unchanged, as all partners of the firm must become partners of the LLP.
Before submitting the application, at least two partners must possess Director Partner Identification Numbers (DPINs), and all partners must hold a valid Digital Signature Certificate (DSC).
Furthermore, compliance with the Partnership Act of 1932 necessitates the registration of the partnership entity before conversion. Unanimous consent from all partners is obligatory. After the conversion is complete, any partner desiring to exit the LLP may do so. All Designated Partners are required to acquire a Director Identification Number (DIN) or Designated Partner Identification Number (DPIN).
| 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. |
The advantages of opting for an LLP over a partnership become apparent when you consider the following:
Separate Legal Entity: An LLP is a distinct legal entity, enabling partners to take legal action against each other if necessary. It has perpetual succession, meaning the business continues even if partners change, with dissolution requiring mutual agreement.
Flexible Agreement: Ownership transfer in an LLP is straightforward, allowing for quick induction of designated partners with ownership transfer.
Suitable For Small Business: LLPs with capital below 25 lakhs and turnover under 40 lakhs annually are exempt from formal audits, making LLP registration particularly beneficial for small businesses and startups. An LLP can also own property as a juristic person, preventing partners from claiming property as personal assets.
No Owner/Manager Distinction: Unlike private limited companies with separate directors and shareholders, LLPs are managed and owned by the same partners, which might deter venture capitalists from investing in LLPs.
Here’s the step-by-step process for LLP registration in India, now facilitated by Startupism for a seamless experience:
For a 12-month period starting no later than 14 days after registration, the LLP must include the following information in all official communications: a declaration of its conversion from a partnership to an LLP, the registration date, and the converted entity should include the name and registration number (if applicable) of the original firm from which it underwent conversion. Non-compliance may result in penalties, ranging from ₹10,000 to ₹1,00,000, with additional fines of at least ₹50 per day, up to ₹500 per day if violations persist.
This document serves as an application and statement for converting a firm into an LLP.
Part A: Application – Information to be Provided:
Part B: Statement – Contents of the Declaration:
Attachments Required:
The e-form must be digitally signed by a designated partner with DIN/DPIN. Certification by a practicing Chartered Accountant/Company Secretary/Cost Accountant is mandatory.
The Registrar must be informed using Form 14, providing the firm’s name, principal address, details of firm registration, and details of the converted LLP, along with its Certificate of Incorporation. The partner should digitally sign the form.
When planning to convert a partnership into an LLP, ensure you have the following documents:
To Be Submitted By Partners:
Note: One of the partners must self-attest the first three documents. For foreign nationals and NRIs, all documents must be notarized (if currently in India or a non-Commonwealth country) or apostilled (if in a Commonwealth country).
For Registered Office:
The process of converting a partnership company into an LLP retains the flexibility and financial benefits of a partnership while providing limited liability protection to partners. Here are the required steps:
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: Partners must apply for a name reservation for the proposed LLP with the MCA, submitting the RUN-LLP form. The chosen name must be unique and distinct from any other registered LLP company.
Drafting LLP Agreement: An agreement outlining the overall operation of the LLP must be drafted and signed by all partners. This agreement should comply with the provisions of the Limited Liability Act of 2008.
Filing of Form : The application and declaration for the conversion of a partnership company into an LLP must be submitted to the MCA through this application.
Filing of Form 3: Partners are required to file Form 3 with the Registrar of Companies (RoC), along with the LLP agreement and other necessary documents, to complete the registration process.
Partners’ Liability Before Conversion Before the conversion of a partnership firm into an LLP, members of the partnership are jointly and severally liable for the debts and obligations of the company.
This means that if the partnership cannot meet its obligations, partners are personally responsible for settling creditors’ claims. However, the partners’ liability is limited to the capital they contributed to the LLP following the conversion.
Effect of Registration Upon the registration of the LLP, the partnership company is considered dissolved, and its assets and liabilities transfer to the LLP.
The operations of the partnership can continue uninterrupted under the LLP, with the named partners of the partnership company now becoming partners of the LLP. The LLP is a distinct legal entity with perpetual succession, allowing it to persist even if partner changes occur.
The LLP also enjoys various tax benefits, including the pass-through taxation system. Legal actions that were ongoing against the partnership company can be pursued against the LLP, and all existing contracts and agreements involving the partnership remain in effect with the LLP as a party.
With Startupism, registering an LLP becomes an effortless process in India. We simplify the entire compliance procedure and strive to expedite the process. We stay updated with any Ministry of Corporate Affairs changes to the LLP process, ensuring your compliance.
Our services include:
The crucial steps include obtaining digital signatures for all partners, applying for DIN for all partners, submitting the RUN-LLP Form on the MCA website, filing Form FiLLiP for the conversion, and registering the LLP agreement with the MCA website. Lastly, obtaining a Certificate of Incorporation for your LLP is vital.
No, both registered and unregistered Partnership Firms can be converted into LLPs.
To establish a Foreign LLP in India, you need to submit the statement of Account and Solvency from the foreign LLP using Form 8. This must be done within 30 days after the first six months of the fiscal year have ended, and the fee is ₹1000.
Yes, an LLP must file a Yearly Return and Statement of Earnings with the Registrar of Companies (RoC) each year.
A partner is a member of an LLP, while a designated partner is responsible for ensuring compliance with the LLP Act and has additional legal obligations, such as maintaining books of accounts and filing documents with the RoC.
The primary advantage of converting a partnership firm to an LLP is that it limits the liability of partners. They are not personally liable for the debts and obligations of the LLP beyond the capital they have contributed to it.
The conversion results in the dissolution of the partnership company, with its assets and obligations transferring to the LLP. The operations of the partnership can continue under the LLP, which is a separate legal entity with perpetual succession.
One of the most critical prerequisites for converting a partnership into an LLP is obtaining the consent of all partners.
The fees for converting a partnership firm into an LLP depend on various factors, including authorized capital, the state of registration, and the professional fees charged by the consultant assisting with the conversion.
At Startupism, we understand that turning your innovative ideas into a thriving business is no small feat. That’s why we’re here – to simplify the complex, to guide you through the process, and to empower you to succeed.