PARTNERSHIP TO LLP

ABOUT PARTNERSHIP TO LIMITED LIABILITY PARTNERSHIP

Limited Liability Partnerships have an upper hand over the general partnership structure as it is much more beneficial for the partners involved. LLP is a separate legal entity with compulsory registration with the central government, which is not the case with the partnership. It is a business structure that integrates the advantages of the company’s corporate structure and the flexibility of the partnership, i.e. for organizing their internal composition and operation as a partnership. Therefore conversion of partnership firm into LLP is a good business decision to secure the partners’ rights and limit their liabilities.

BENEFITS

LIMITED LIABILITY OF OWNERS

The liability of Partners is limited to an extent of capital contribution as agreed by the partners in the LLP Agreement. The loss or debt of LLP cannot be assigned to partners even at liquidation. Further, one partner is not held responsible for the actions of negligence or misconduct of any other partner.

SEPARATE LEGAL ENTITY

The partnership is not a separate legal entity. In case if the partner(s) dies or retires or in any other case has to leave the firm, the partnership ceases to exist. In this case, a new partnership has to be formed; but this is not the case with a limited liability partnership. Limited liability partnership is a separate legal entity.

TAX BENEFITS

LLP saves the Dividend Distribution Tax, Minimum Alternative Tax, and Income Tax because interest and remuneration are paid to partners as a salary that is payable to directors.

RAISING CAPITAL

Raising Capital is easier in the LLP structure as it allows a limited partner to participate without taking on any accountability, unlike the general partnership where all common partners have unrestrained liability.

DOCUMENTS REQUIRED

MINIMUM REQUIREMENTS

PROCESS

Requirement of Digital Signature:

Typically the Partners in a Partnership Firm do not have a digital signature because it isn’t necessary for the registration of a partnership firm. However, if the partners decide to convert the Partnership Firm into an LLP, then the Digital Signature Certificate (DSC) is a mandatory requirement for all the Partners.

Requirement of DIN or DPIN:

The Partners in an LLP or the Directors in a Private Limited Company require a DIN / DPIN. A DIN is a unique number which is given to each partner or a director of an LLP. Once, a DIN /DPIN is issued , it can be used without any renewal or any compliance filing for the lifetime.

Getting the Name Approval done:

Once, two DIN/DPIN are available , an application for name reservation of the prospective company can be made to the Ministry of Corporate Affair. The Reservation of the name of the LLP must be obtained before filing the forms for conversion of the Partnership Firm into LLP.

Filing LLP Form 17:

Application and a Statement of the Conversion of Partnership Firm into LLP (Limited Liability Partnership) i.e., Form 17 should be filed along with the incorporation application. The subscriber’s sheet should also be filed while converting a partnership firm into an LLP. After filling the form 17 the mentioned documents should be mandatorily attached with it:

  • A Statement of consent of partners of the firm.
  • A Copy of the acknowledgment of the latest income tax return (Mandatory).
  • Approval from any regulatory body/ authority (Mandatory).
  • Prepare a list of all the secured creditors along with their consent to the conversion. It is Mandatory in case the consent of all the secured creditors for the conversion of the firm into a limited liability partnership has been.
  • A Clearance or No Objection Certificate (NOC) from the Tax Authorities.
  • Once, an LLP Form 17 is filled it must be digitally signed by a Designated Partner from a professionally practicing Chartered Accountant/Cost Accountant/Company Secretary.

Filing for Incorporation & Conversion of Partnership into LLP:

For the Conversion of a Partnership Firm into LLP, LLP Form 2 and LLP Form 3 must also be filed. LLP Form 2 contains the incorporation document and the subscriber’s statement along with the following attached documents:

  • Proof of address of the registered office of the LLP.
  • The Subscribers’ sheet with consent.
  • In principle an approval of the regulatory authority, if required.
  • The Details of LLP(s) and/ or company(s) in which the partner/ designated partner is a director/ partner (if any).
  • The LLP Form 3 contains the initial Limited Liability Partnership Agreement. This form can be filed once the Partnership Firm is converted into an LLP or while filing for the conversion of the Partnership Firm into LLP. The LLP Agreement must be attached with the LLP Form 3.

Successful Conversion of Partnership Firm into LLP

On successful conversion of Partnership firm into LLP, the Registrar would then issue a Certificate of Incorporation of LLP and all the properties, assets, interests, rights, privileges, etc. of the firm are now transferred to the LLP. In other words, the complete undertaking of the firm is transferred to the LLP.

However, any approvals/permit/license that is issued under any law to the Partnership Firm will not be automatically transferred to the Limited Liability Partnership. Therefore, fresh licenses or any registrations may be required. This aspect of conversion of a Partnership into LLP must be well considered before the conversion process.