Conversion of LLP to Partnership Firm
Company Conversion

Conversion of LLP to Partnership Firm

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Any limited liability or independent legal body does not manage traditional partnership firms. An LLP offers greater freedom and assured security.

These resources are not available in a conventional partnership firm. Converting their partnership firm to an LLP is advantageous if partners want certain independence. There is a formal procedure for achieving the above process.

Different characteristics of a Partnership Firm

The Indian Partnership Firm Act, 1932’s guiding principles apply to partnership firms. The following characteristics of a partnership firm are necessary:

  • A partnership firm or agreement between two or more people to split the gains and losses of a certain endeavor or business.
  • The profit-sharing percentages of the partners are laid forth in a separate legal document called a partnership firm deed.
  • The partners in a partnership firm do not have limited liability status. Therefore, converting the partnership firm to an LLP would be the best option if the partners want limited liability status and more freedom.

Why is it necessary to convert a partnership firm to an LLP?

Given all the disadvantages of a regular partnership firm mentioned earlier, converting a partnership firm to an LLP would be the wisest choice. An LLP is a distinct legal entity that exists independently of the firm’s partners.

Due to the restricted responsibility of the partners, creditors cannot pursue the partners for any debts or obligations owed by the partnership firm business.

An LLP combines the advantages of a private limited company and a traditional partnership firm. Therefore, this hybrid entity is appropriate for people who want flexibility.

Benefits of Partnership Firm Conversion to LLP

One can gain the following advantages by converting a partnership firm to an LLP:

  • Greater Investment

Converting the partnership firm to an LLP would increase the amount of investment in the LLP. Since the entity’s reputation would improve, more investors would participate in the LLP due to the conversion.

  • Continuous Succession

The partnership firm does not end when one partner leaves or dies. The LLP would be subject to the most dignified principle in the business community, which is of perpetual succession.

  • Small Liability

Upon converting the partnership firm to an LLP, the partners would immediately acquire limited liability status. Thanks to limited liability, the firm’s partners would have some degree of freedom. Limited liability separates the partners’ culpability from the firm’s obligation.

  • A managerial choice

An LLP’s flexibility and decision-making process are increased when a partnership firm is converted to an LLP as opposed to a conventional partnership firm.

  • Direct foreign investment

The Indian government has loosened the rules governing FDI in an LLP. FDI is treated more leniently in an LLP than in a partnership firm.

How to Convert a Partnership Firm to an LLP?

For the conversion of a partnership firm to an LLP, the following process must be taken into account:

  • Acquire DSC (Digital Signature Certificate of Partners)

The first stage requires all partners to get a digital signature certificate to convert a partnership firm to an LLP.

  • Obtain the DIN or DPIN

In the second stage, the partners must obtain the specified partner identification number (DPIN). If a DPIN is assigned to the partnership firm, it will be assigned for life.

  • Acceptance of Name

The partners must submit the Form FiLLip in the next stage. The partners of the partnership firm must take this action for it to change into an LLP.

  • Submitting Form-3

The Form 3 must contain all the information referred to in the LLP agreement. Additionally, it is necessary to provide facts regarding the LLP. This must be sent with the original copy of the LLP agreement attached. The LLP agreement must have the following details. The following details must be included in Form 3:

  1. Details on the LLP include its name, designated partners’ information, the total number of partners, and the proportions of each partner’s ownership interest.
  2. Do you have any further details on the LLP?
  3. The rights and obligations of the firm’s partners.
  4. Capital contribution to the partners.
  • Submitting Form 17

The partners must submit this form to request a partnership firm’s conversion to an LLP. All of the firm’s partners must individually sign the declaration. Every relevant partner’s digital signature is necessary for the same process. A chartered accountant, corporate secretary, or cost accountant must also sign this. Several papers must be presented in this form:

  1. The firm’s partners’ consent.
  2. A certified statement of the company’s assets and liabilities.
  3. Details relating to the company’s creditors.
  4. Agreement from each partner that the company may carry out the conversion procedure.
  5. Copies of the company’s income tax returns.
  • A certificate of incorporation

Following this procedure, the partnership firm would get its certificate of incorporation from the Registrar. This would include transferring all interests, assets, and obligations to the LLP. However, if it had any new types of licences or registrations, the company would need to apply for new licences and registrations.

  • Registrar of Firms Intimate

As the last stage, the LLP partners must inform the firms about converting the partnership firm to an LLP. After this procedure, Form 14 must be delivered to the Registrar within 15 days.

Documents for Partnership Firm to LLP

The following papers must be submitted to convert a partnership firm to an LLP:

  • The proposed LLP’s name
  • Data about the partnership firm’s deed
  • Certificate of the Respective Partners’ Digital Signature
  • LLP’s authorized capital
  • Any details about the partners’ contribution
  • Information about the partnership firm limited entity’s registered office
  • Voter identification cards and other identifying documents of the Partnership firm
  • Electricity, water, or any other utility bill for the partnership firm
  • The property’s lease or ownership documents can provide evidence of the partnership firm’s registered office.
  • Each partner’s Permanent Account Number (PAN) in the partnership firm
  • Information from audits on the Partnership firm
  • Statements like the Partnership firm’s Bank Details
  • Principal Goals of Partnership Firm Business
  • If the property is rented, the owner’s NOC must be provided.

Documents filed after incorporation

  • a replica of the LLP’s certificate of incorporation
  • The paperwork submitted for FilliP.
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