Converting a partnership firm into a Limited Liability Partnership (LLP) offers several advantages:
- Limited Liability Protection: One of the most significant advantages is that the personal assets of the partners are protected from the liabilities of the business. Unlike in a traditional partnership, where partners are personally liable for business debts, in an LLP, the liability is limited to the extent of their capital contribution.
- Separate Legal Entity: An LLP is considered a separate legal entity, meaning it can own property, sue, and be sued in its own name. This provides a clear distinction between the business and the partners.
- Perpetual Succession: An LLP has perpetual succession, meaning its existence is not affected by changes in partners, such as death, retirement, or insolvency. The LLP continues to exist until it is legally dissolved.
- Tax Benefits: LLPs typically enjoy pass-through taxation, meaning the income is taxed only at the partner level, avoiding double taxation. This can result in tax savings compared to a corporation.
- Ease of Raising Capital: An LLP can attract investors more easily than a traditional partnership, as the structure is more formal and offers limited liability protection. This can make it easier to raise capital for expansion.
- Lower Compliance Requirements: LLPs generally have fewer compliance requirements compared to private limited companies, which can reduce the administrative burden on the partners. This includes less stringent auditing and reporting requirements.
- Professional Recognition: Converting to an LLP can enhance the credibility and professional recognition of the business. Clients, suppliers, and investors may view an LLP as more stable and reliable than a traditional partnership.
- Transferability of Ownership: The ownership in an LLP can be easily transferred to another person, subject to the agreement between the partners, making it easier to introduce new partners or transfer ownership.
Overall, converting a partnership firm into an LLP provides a more robust business structure, offering limited liability, enhanced credibility, and operational flexibility, making it a popular choice for businesses looking to scale up or formalize their operations.
Pre-requisites for converting Partnership Firm into LLP
- The partnership firm should be a registered firm under the Indian Partnership Act, 1932. However, even unregistered firms can be converted, though additional steps might be required.
- All partners of the existing partnership firm must agree to the conversion. The consent should be made in the form of a written agreement.
- It must be written in partnership firm deed that the partnership deed should not contain any clauses that prohibit or restrict the conversion of the partnership firm into an LLP.
- Conversion must comply with the provisions of the Limited Liability Partnership Act, 2008 and its rules and regulations made time to time.
- The LLP will get transfer of all assets, liabilities, obligations, and contracts of the existing partnership firm. The partners will remain jointly and severally liable for the liabilities of the firm incurred prior to the conversion.
- The partnership firm should not have any outstanding statutory liabilities or be in default in filing annual returns, income tax returns, or any other compliance requirements before conversion.
Procedure for Conversion of Partnership Firm into LLP
Get first Name Approval
- File RUN-LLP form for reserving the name of LLP by selecting the option “Conversion of Firm into LLP”
- Two names choices can be submitted through the RUN-LLP form.
- Reserved name is available for 90 days.
Also Read: Advantages of LLP Frim registration in India
Make Digital Signature Certificates
- It is compulsory requirement for incorporating an LLP under the Companies Act, 2013 to get Digital Signature Certificate by the desirous partner of LLP for affixing the digitally signatures in the subsequent forms.
Filing of the Forms with the Registrar
- FORM 17 is required to be filed by applicants for conversion of Partnership Firm into LLP.
- Certain details like name of proposed LLP, name, address, registration and partnership agreement, number of partners and other details need to fill.
- Attachments: statement of consent of partners of the firm, statement of assets and liabilities of the firm certified by Chartered Accountants, copy of latest ITR, list of sundry creditors and other attachments.
- Form FiLLiP (form for incorporation of LLP) to be filed with the necessitated details and documents like proof of address of the registered office of the LLP, consent of subscribers, NOC form the property owners, identity and address proofs of subscribers and other necessary documents to be attached with FiLLiP.
Issue of Certificate of Incorporation (COI)
- The Certificate of Incorporation/Registration of the LLP shall be generated once the approval of above-mentioned approved by the Registrar of the LLPs.
Limited Liability Partnership (LLP) Agreement
- The LLP Agreement containing the details like Name of the LLP, details of the designated partners and other partners, declaring the value of capital contribution and profit/loss sharing ratios, provision and rules for running LLP, rights and obligations for performing the duties and other details.
Intimation to the Registrar of Firms (RoF)
- Form 14 – this form is must require to be filed with RoF within 15 days prior to the date of incorporation of LLP.
- The following attachments must be accompanied with the Form 14
- >Copy of the Incorporation of LLP (COI).
- >Copy of the registration documents as filed with ROC in FiLLiP form.
Effect of Registration
- Assets, Liabilities, Rights and Privileges which managed and controlled in the of previously partnership firm in the LLP.
- All legal issues and litigation pending in the name of partnership firm may enforced into LLP.
- All existing contracts and agreements in which the firm was a party shall continue to be in force with the LLP as the party.
- Every partner will be jointly and severally liable for all the liabilities and obligations of the firm which were incurred before such conversion. If any partner discharges the obligation, then he shall be indemnified by the LLP.
Penalty and Fine
A Limited Liability Partnership (LLP) may be subject to the following fines if it disregards the obligations of reporting its conversion from a partnership firm:
- FIRST-TIME PENALTY
A minimum fine of ₹10,000 and a maximum fine of ₹1,00,000 might be imposed on the LLP.
- Continuing Fine
Should the LLP persist in its default, it may be subject to a daily minimum punishment of ₹50 and a daily maximum fine of ₹500.
The LLP must include a statement in all official correspondence for a period of 12 months after registration. The statement must include:
- The date of registration when the LLP was converted from a firm to an LLP.
- The name and registration number of the firm that was converted.
Also Read: LMPC Registration: A Comprehensive Guide by Filingpool