How to Convert Partnership Firm to LLP and its benefits

Detailed Guide on Conversion of Partnership Firm to LLP and its benefits

How to Convert Partnership Firm to LLP and its benefits

Procedure for conversion of an partnership firm to an LLP and its benefits

Introduction

Compared to a typical partnership, a limited liability partnership (LLP) can be a far more efficient company structure. While LLPs do away with the onerous provisions of the Indian Partnership Act of 1932, personal liabilities hurt partnerships. Additionally, there are tax benefits, no audit responsibilities under a certain capital threshold, no partner cap, and no capital contribution restrictions. This blog will provide a thorough explanation of the advantages of LLPs over partnership firms as well as information on how to change a partnership firm into an LLP, the documents required for the change, and other relevant topics.

What is LLP?

A Limited Liability Partnership (LLP) is one in which the liability of some or all of the partners is restricted. It can therefore show characteristics of enterprises and partnerships. In an LLP, no partner is accountable or liable for the negligence or bad behavior of another partner.

Advantages of LLP over Partnership Firm

There are many benefits to a Limited Liability Partnership over a Partnership Firm for your company. The limitation of liability and management flexibility are the two main advantages of choosing an LLP over a partnership firm. Unlike Partnership Firms, LLPs do not subject their members to unrestricted liability. Members or partners of a limited liability partnership firm have the same legal rights as the firm itself to sue and be sued, and they also have the same legal rights to sue others.

The process to convert Partnership Firm to LLP

Form17 must be completed by every current partnership firm that wants to become an LLP (Application and statement for the conversion of a firm to an LLP).Together with Form 2 (the articles of incorporation and the subscriber's statement).

1. Obtain every Partner’s Digital Signature

Partners in a partnership firm normally do not have a digital signature because it is not necessary for a partnership firm to be registered. All of the Partners will require digital signatures if they decide to convert the Partnership Firm into a Limited Liability Partnership.

2. Obtaining DIN/DPIN for Converting Partnership Firm to LLP

Partners in an LLP or directors in a Private Limited Company must have a DIN or DPIN. Each LLP Partner or Director is given a unique number called a DIN. A DIN or DPIN is valid for the rest of the user's life without needing to be renewed or submitted with any compliance papers.

3. Name Approval for LLP

  1. Log in after creating an account on the MCA website.
  2. It is necessary to choose the "RUN - LLP" option from he MCA Services menu.
  3. The term Reserve Unique Name is referred to as RUN.
  4. Selecting "Conversion of Firm into LLP" from the dropdown list is required.
  5. There are then two suggested names for the LLP.
  6. In addition, before hitting the "Submit" button, you can upload any supporting PDF files.
  7. The page directs users to a payment page where they must pay the fee for submitting the form.
  8. After then, the reserved name has a 90-day validity period.

4. Filling of Form 17 (An application for converting partnership to LLP)

The application form must include the following information

  1. The Service Request Number for the RUN - LLP form (SRN).
  2. Name of the proposed LLP.
  3. The partnership agreement, company name, address, and registration information are all included.
  4. Information on the number of partners and the required capital contribution.
  5. Information on secured creditors.

5. Below are the attachments which need to be provided:

  1. Statement of the Partners' Consent for the Firm.
  2. A list of the company's assets and liabilities that has been verified by an active chartered accountant.
  3. A copy of the receipt for your most recent income tax return.
  4. Included are all secured creditors and their consent.
  5. Any additional evidence (optional).

6. Fill out the FiLLiP form (Form for incorporation of LLP)

The following information must be included on the application form:

  1. RUN - LLP data that will be automatically filed.
  2. The location of the LLP's registered office and its email address.
  3. The office of the registrar
  4. The character of business activities.
  5. Below is a list of the designated partners, partners, and their DPINs, DINs, and PANs.
  6. The sum invested by the partners in the LLP. 

7. The following documents must be provided

  1. Evidence of the location of the LLP's registered office.
  2. Approval from the subscriber.
  3. A letter of authorization from the property owner and a copy of the utility bills (not more than 2 months old).
  4. Approval from any relevant regulatory body, if necessary.
  5. List any LLP or corporation where a designated partner also serves as a director or partner.
  6. List any LLP or corporation where a designated partner also serves as a director or partner. Verification of the applicants' addresses and identities.
  7. A copy of the Board Resolution or Consent of the existing LLP works as A No Objection Certificate when the name of the new LLP is the same as that of an existing company or LLP.

8. Form LLP – 3 must be used to submit the LLP Agreement

The LLP Agreement shall be filed in Form LLP-3 within thirty (30) days after the LLP's incorporation. It must incorporate the following details.

  1. LLP’s name
  2. Non-designated partners, and Names of designated
  3. Profit-sharing ratio and Form of capital contribution
  4. Rules that are governed for LLP
  5. Partners’ rights and responsibilities

Once the LLP is established and the Partnership Firm is converted, the Partnership Firm is assumed to be dissolved. Additionally, all of the firm's assets, properties, rights, interests, privileges, obligations, and liabilities are transferred to the LLP when a partnership is changed to an LLP. In other words, the LLP is in charge of managing all aspects of the business.

Any licenses, approvals, or other rights given to the Partnership Firm by any written law shall not automatically pass to the LLP. New licenses or registrations can be required as a result. Prior to starting the conversion procedure, it is essential to assess all the implications of changing a partnership into an LLP.

FAQs on Conversion of Partnership Firm to Limited Liability Partnership

Que - What documentation is required to switch from an LLP to a partnership firm?

  • Filing a current tax return
  • Proof of address
  • Details about partners and directors
  • Approval from creditors
  • Certified partners' assets and liabilities
  • The regulatory authority's endorsement
  • Each partner and director has provided their NOC to the tax authorities.

Que - What is the primary benefit of transforming a partnership firm into an LLP?

The fundamental benefit of changing a partnership firm into an LLP is that it will safeguard the partners' private assets

Que - What are the most important steps in converting a Partnership Firm to a Limited Liability Partnership?

  • A DSC is required of all partners.
  • They must then get a unique partner identification number.
  • After then, the company must seek approval for their name.
  • The name must have the letters LLP at the end.
  • Fill out forms 17, 2, and 3 for LLPs.

Conclusion

Following the procedure, a partnership firm will be converted into a limited liability partnership, gaining the right to act as a separate legal entity and bring and defend lawsuits against other businesses. Additionally, it helps partners safeguard their assets in the event of a company's bankruptcy or other unanticipated circumstances.

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