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Proprietorship firm into LLP

The Limited liability Partnership structure is the talk of the town! With its abounding benefits over the other forms of businesses especially the proprietorship it is gaining popularity these days.

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Why convert proprietorship into LLP?

Advantages of both a company and a partnership firm are available in a LLP. By converting one’s business into LLP, the sole proprietor will be able to distribute the risks that were earlier borne by him alone with his partners. LLP allows a proprietor to set up a business which has a distinct legal identity and a limited risk.

Procedure for Conversion

A sole proprietorship cannot be converted into a LLP. Therefore, a new LLP has to be incorporated which will take over the sole proprietorship business.

Steps to incorporate a LLP are:

  • Application for DIN or DPIN: All the partners are required to get DPIN(Designated Partner Identification Number). DIN can be used if a partners possesses DIN.
  • Acquire/ Register DSC: Digital Signature Certificate should be obtained and should be registered with the LLP Application.
  • Incorporate a LLP: Form1 to be filled for Name confirmation and form 2 should be filed for Incorporating an LLP after the Name is confirmed.
  • File LLP Agreement: After incorporation of LLP, an initial LLP agreement is to be filed within 30 days of incorporation of LLP.

FAQs

What is the validity period of the name approved for LLP?

The approved name of LLP shall be valid for a period of 3 months from the date of approval.

Can a LLP undertake Not-for-Profit activities?

No. One of the requisite of an LLP is to carry on business for profit.

When is an LLP required to get its books audited?

If the LLP has a turnover of Rs.40 lakhs or more and/or has a capital contribution of Rs.25 lakhs or more, the financial statements should be audited.

What are the compliance requirements for LLPs?

Every LLP is required to maintain annual accounts reflecting true and fair view of its state of affairs. A statement off accounts and solvency shall be filed by every LLP with the registrar of LLP every year.

Will the assets and liabilities of the firm be transferred automatically to LLP?

All tangible as well intangible property vested in the firm, all assets, interests, rights, privileges, liabilities, obligations relating to the firm and the whole of the undertaking of the firm shall be transferred to and shall vest in the LLP without further assurance, act or deed.

Can the losses or unabsorbed depreciation of the proprietorship concern be carried to the LLP?

The accumulated loss and unabsorbed depreciation of firm is deemed to be loss/depreciation of the successor LLP for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor LLP.


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