Convert Partnership Firm to LLP

Differences Between a Partnership and an LLP

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Partnership and Limited Liability Partnership (LLP) are both forms of business structures but they have some key differences.

In a partnership, two or more individuals come together to conduct business and share the profits and losses. The partners are personally liable for the debts and liabilities of the business. The partnership does not have a separate legal entity, and the partners are jointly and severally liable for the debts of the business.

In an LLP, there is a separate legal entity and the liabilities of the partners are limited to their capital contributions. This means that the personal assets of the partners are protected in case of any debts or liabilities of the LLP. An LLP also has the option to raise equity capital by issuing shares to investors.

Another difference is in terms of compliance, an LLP is required to file annual returns and hold annual general meetings, while a partnership is not.

Additionally, in a partnership firm, the death, insolvency or lunacy of a partner leads to the dissolution of the partnership firm, while in LLP the existence of the LLP is not affected by the change in partners.

In terms of taxation, LLP is taxed as a partnership firm but with a lower tax rate and tax exemptions.

Requirements for Converting a Partnership Firm to LLP

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The process of converting a partnership firm into an LLP is governed by Section 55 of the Limited Liability Partnership Act 2008 and Schedule II of the Act. This process requires that all existing partners of the partnership firm become partners of the LLP, without any new partners being added or existing partners leaving. It is mandatory for all partners to have a valid Digital Signature Certificate (DSC) and for at least two partners to have a Designated Partner Identification Number (DPIN) before making the application. Additionally, the partnership firm must be registered under the Partnership Act, 1932 and all partners must give their consent. The LLP must have the same partners as the partnership firm and any partner who wishes to leave the LLP can do so after the conversion is complete. All Designated Partners must obtain a Director Identification Number (DIN) or Designated Partner Identification Number (DPIN) before the process of conversion begins.

Procedure for Conversion of a Firm From Partnership to LLP

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Converting a partnership firm into an LLP involves several steps, as outlined below:

Step I – Name Approval and DSC:

a. Name Approval:

– Register and log on to the MCA portal
– Select the “RUN – LLP” option under the MCA Services tab
– Select the “Conversion of Firm into LLP” option from the dropdown list
– Provide two proposed names for the LLP and upload any supporting documents
– Pay the fee of Rs. 200 and the reserved name will be valid for 90 days.

b. Digital Signature Certificates:

– Obtain Digital Signature Certificates (DSC) for all designated partners to proceed with the name incorporation stage.

Step II – Filing of the Forms with the RoC: a. Form 17 (Application and Statement for conversion of a firm into LLP):

– Fill in the application form with information such as the Service Request Number (SRN), proposed LLP name, details of the firm, and the number of partners.
– Provide attachments such as the statement of consent of partners, statement of assets and liabilities, and any other supporting information. b. Form FiLLiP (Form for incorporation of LLP):
– Fill in the application form with details of the RUN – LLP, registered office address, nature of business activities, and details of partners, designated partners, and their DINs, DPINs, and PANs.
– Provide attachments such as proof of address of the registered office, subscriber’s consent, and any other necessary approvals and information.

Step III – Issue of Registration Certificate:

– The Registrar will issue a certificate of registration on approval of the application.

Step IV – LLP Agreement:

– Submit the LLP Agreement in Form LLP-3 within 30 days of incorporation, containing details such as the name of the LLP, names of partners, form of capital contribution, and profit sharing ratios.

Step V – Intimation to the Registrar of Firms:

– Provide intimation to the Registrar of Firms within 15 days of incorporation, along with copies of the LLP Incorporation Certificate and incorporation documents submitted in Form FiLLiP.

Once all these steps are completed, the conversion from partnership to LLP is complete. It is important to note that any old licenses and permits do not transfer over to the LLP and will need to be obtained separately.

Documents Required to Convert Partnership Firm to LLP

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The following documents are required when converting a partnership to a LLP:

1. Scanned copy of PAN Card or passport (for Foreign Nationals and NRIs)
2. Scanned copy of Aadhar Card, Voter’s ID, Passport or Driver’s License
3. Scanned copy of a recent bank statement, telephone or mobile bill, or electricity or gas bill
4. A passport-sized photograph and specimen signature of the partners
5. For the registered office: a scanned copy of a recent bank statement, telephone or mobile bill, or electricity or gas bill, a notarized rental agreement in English, a No-objection certificate from the property owner and a sale deed or property deed in English (if the property is owned)

Note: At least one partner must self-attest the first three documents. For 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).

Benefits of a Limited Liability Partnership

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There are several benefits to registering a Limited Liability Partnership (LLP) in India, including:

Limited liability: The liability of the partners in an LLP is limited to their capital contribution. This means that the personal assets of the partners are not at risk if the LLP incurs debts or obligations.
Shared decision-making: In an LLP, the partners have equal say in the management and decision-making of the business. This can foster a collaborative and democratic approach to business management.
Flexibility: LLPs offer flexibility in terms of profit sharing and management, as the partners can determine their own contribution and role in the business.
Ease of formation and operation: LLPs are relatively easy to set up and operate, and they do not have the same regulatory requirements as private limited companies.
Tax benefits: LLPs are taxed at a lower rate than private limited companies, making them a tax-efficient option for certain types of businesses.
Professional image: LLPs can be a more professional and credible option for certain types of businesses, such as professional practices, as they offer limited liability protection to the partners.

FAQs on Conversion of Partnership to LLP

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