What is the Procedure of Converting Partnership Firm into LLP?

A partnership firm is an organization which is formed with two or more persons to run a business with a view to earn profit. Partnership is the result of contract. It does not arise from status, operation of law inheritance. Thus, in the death of a father who was a partner in the firm, son can claim a share in the partnership property but cannot become partner unless he enters into a contract. One of the disadvantages of this business entity is that unlimited liability. All partners are equally liable for the debts and losses of the firm. No matter, the cause of the debt or loss is only person. The unlimited liability is one of the most common reasons why people convert switch from partnership firm into LLP. Because an LLP is a form of partnership where a partner is not liable for the malpractice of another person in the company. The partnership of the LLP is having limited liability which means partners are not liable to pay the debt of another partner in the company. Another reason to convert partnership firm into LLP is that partnership firm is not a legal entity, the voluntary registration is not required to run the business. Whereas the LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited. 

 

Are you running a partnership firm and want to convert into an LLP? If yes, you have come to the right place. In this article, we are going to tell you the procedure of converting a partnership firm into an LLP. So, let’s get started. 

 

Basic requirements  to convert existing partnership firm into LLP:

 

Digital signature: In a partnership firm the partners would not have a digital signature to register a firm. However, at the time of conversion the digital signature would be required for all partners. 

DIN: Partners in an LLP or directors in a Private Limited Company requires a DIN/DPIN. A DIN is a unique number given for each person who is an LLP or director. Once DIN/DPIN number is issued, it can be used for a lifetime without any renewal. 

Name Approval: Once digital signature, and DIN number are issued, application for name approval can be made to the Ministry of Corporate Affairs. Before deciding the name of the LLP, you need to follow some guidelines of the companies Act 2013. 

 

Documents Required For LLP Registration

Latest passport size Photographs of all partners

PAN ( Permanent Account Number) of all Partners (Minimum 2)

Identity Proof of each partner, (Aadhar Card, Passport, Driving License or Voter ID Card)

Address Proof of all partners (Bank Statement or Passbook, electricity bill, telephone bill, Aadhar card or any utility bill)

Copy of Mobile bill, telephone bill, electricity bill or Bank Statement of all Partners with Present address

Registered Office Address Proof – Electricty Bill along with Rent Agreement / ownership proof of proposed registered office.

Stamp paper for LLP Agreement of State where LLP is to be Incorporated

Documents Must be self attested

 

Steps for converting a partnership firm into LLP:

Step 1 - Deciding Partners and Designated Partners

Step 2: Obtaining DPIN and Digital Signature (Obtaining DPIN for a DP in LLP is restricted by MCA till 31 March 2018)

Step 3: Checking availability of desired name and reserving it with ROC

Step 4: Filing of incorporation and conversion documents

Step 5: Obtaining certificate of registration

Step 6: Drafting of LLP Agreement

Step 7: Filing LLP Agreement with Registrar of Companies 

 

Filing LLP Form-17- Conversion of partnership into LLP.

 

LLP Form 17 is the application form which must be filled along with the incorporation application and subscriber sheet while converting a firm into LLP. Further, the documents are required to filled this form are listed below;

  • Statement and consent of the firm partners. 
  • Statement of assets and liabilities of the firm duly certified as true and correct by chartered account practice. 
  • Copy of acknowledgment of the latest income tax return. 
  • Approval from any regulatory body/ authority is required  and have been obtained. 
  • List of the secured creditors along with their consent to the conversion 
  • Clearance or NOC from the authorities 

 

Key Comparison between LLP, Partnership firm:

 

Basis for comparison 

LLP 

Partnership firm 

Meaning 

Limited Liability Partnership is the form of business entity which combines the features of a partnership and body corporate 

Partnership firm refers to an

Agreement where in two or more persons agree to run a business and share profit and loss mutually 

Legislation 

Limited Liability Partnership

Act, 2008

Indian Partnership act, 1932.

Registration 

Mandatory 

Optional 

Charter document 

LLP agreement 

Partnership deed

Liability 

Limited liability 

Unlimited Liability 

Legal status 

It has a separate legal status.

Partners are collectively known as firm, so there is no separate legal entity.

Audit of account 

Mandatory, only if turnover and capital contribution overreaches 40 lakhs and 25 lakhs respectively

Not mandatory 

Relationship 

Partners are agents of LLP only.

Partners are agents of firm and other partners as well.

 

Why LLP is better than a partnership firm?

  • In LLP there is no limit on the number of partners. 
  • The liability of the partners is limited to the amount of capital contributed. 
  • There is no limit on the minimum amount of capital to be contributed. 
  • LLP is a corporate body.
  • LLP has a perpetual succession. Which means the life of the firm is not affected  by death, retirement or insolvency of a partner. The LLP will get winded up only as per provisions of the act 2008. 
  • LLP’s enjoy higher creditworthiness compared to partnerships. 
  • Foreign Direct Investment in LLP allowed. 
  • Further CA firms are not allowed to convert themselves into LLP. 
  • LLP’s can enter into megers, amalgamation with other LLP’S. 
  • All the decision and various management activities are seen and done by the directors of the company. Shareholders receive very less power to hold the company as compared to the directors. 
  • There is no restriction on joining and leaving firm. It is easy to admit as a partner and to leave the firm or easily transfer ownership on others. 
  •  Limited liability partnership is exempted from various taxes such as dividend distribution tax and minimum alternative tax. The rate of tax on Limited Liability Partnership is less than as compared to the company.No compulsory audit required- Every business has. 

 

Final Say:

I hope now you understand the procedure of conversion partnership into an LLP. So, if you want to convert your existing partnership firm into LLP, feel free to contact to Unilex Business Consultant. Here, the professionals are always ready to help you regarding any business entity and offer you the

satisfactory outcomes. To get in touch with us, all you need dial our number or come to our

office and share all your details with our professionals. As soon as we receive your

requirements, we will work on it and offer you great satisfactory solutions.

 

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