Conversion of LLP to Partnership Firm
Traditional partnership firms are not managed by any kind of limited liability or independent legal body. When it comes to an LLP, there is greater freedom along with assured security.
These resources are not available in a conventional partnership firm. If partners want to have certain independence, converting their partnership firm to an LLP is an advantageous decision. To achieve the above process, there is a formal procedure for it.
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:
- Apartnership firm or agreement between two or more people to split the gains and losses of a certain endeavour 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 any type of limited liability status. Therefore, if the partners want limited liability status and more freedom, converting the partnership firm to an LLP would be the best option.
Why is it necessary to convert a partnership firm to an LLP?
Given all the aforementioned disadvantages of a regular partnership firm, 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 kind of hybrid entity is appropriate for people who have room for flexibility.
Benefits of Partnership firm Conversion to LLP
One can gain the following advantages by converting their partnership firm to an LLP:
The amount of investment in the LLP would increase with the conversion of the partnership firm to an LLP. More investors would participate in the LLP as a result of the conversion since the entity’s repute would improve.
The partnership firm does not end when one of the partners leaves or passes away. The LLP would be subject to the most dignifiedprinciple in the business community which is of perpetual succession.
The partners would immediately acquire limited liability status upon conversion of the partnership firm to an LLP. The firm’s partners would have some degree of freedom thanks to limited liability. Limited liability separates the partners’ culpability from the firm’s obligation.
A managerial choice
The flexibility and decision-making process in an LLP are increased when a partnership firm is converted to an LLP as opposed to a conventional partnership firm.
Direct foreign investment
The rules governing FDI in an LLP have been loosened by the Indian government. 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)
To convert a partnership firm to an LLP, the first stage requires all partners to get a digital signature certificate.
Obtain the DIN or DPIN
The specified partner identification number must be obtained by the partners in the second stage. 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 in order for it to change into an LLP.
The Form 3 must contain all the information referred to in the LLP agreement. Additionally, it is necessary to give the 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 with Form 3:
- Details on the LLP, such as its name, designated partners’ information, total number of partners, and the proportions of each partner’s ownership interest.
- Any further details pertaining to the LLP.
- The rights and obligations of the firm’s partners.
- Capital contribution pertaining to the partners.
Submitting Form 17
This form must be submitted by the partners in order to submit a request for the conversion of a partnership firm 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 with this form:
- The firm’s partners’ consent.
- A certified statement of the company’s assets and liabilities.
- Details relating to the company’s creditors.
- Agreement from each partner that the company may carry out the conversion procedure.
- Copies of the company’s income tax returns.
A certificate of incorporation
The partnership firm would get its certificate of incorporation from the Registrar following this procedure. This would include the transfer of all interests, assets, and obligations to the LLP. However, the company would need to apply for new licences and registrations if it had any new types of licences or registrations.
Registrar of Firms Intimate
The partners of the LLP must inform the firms about the conversion of the partnership firm to an LLP as the last stage. After this procedure, Form 14 must be delivered to the Registrar within 15 days.
Documents for Partnership firm Conversion to LLP
The following papers must be submitted in order to convert a partnership firm to an LLP:
- The proposed LLP’s name
- Data pertaining to the partnership firm’s partnership firm deed
- Certificate of the Respective Partners’ Digital Signature
- LLP’s authorised capital
- Any details pertaining to 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
- Evidence or proof of the partnership firm’s registered office can be found in the property’s lease or ownership documents.
- Each partner’s Permanent Account Number (PAN) in the partnership firm
- Information from audits pertaining to 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.
Frequently Asked Questions
1. What is one of the primary conditions for LLP conversion from a partnership firm?
The required approval of each individual partner in the company is one of the key prerequisites for conversion of a partnership firm to an LLP. In addition, the partners of the partnership firm corporation must comply with all regulations linked to the conversion procedure.
2. What level of collaboration was there at the time of conversion?
The number of partners must remain the same at the time of conversion. There cannot be any kind of change in the number of partners, either up or down.
3. How many names can the LLP reserve?
The name must be reserved in advance by the firm’s partners for the conversion of the partnership firm into an LLP. This technique or name reservation process may be done online. The partnership firm would be permitted to reserve a maximum of six names. These names must be listed in the partnership firm’s order of preference. When a partnership firm is converted into an LLP, the registrar may also request that the LLP submit an application for a new name.
4. What are the name regulations that an LLP is supposed to abide by?
The partners must adhere to the following guidelines when naming the partnership firm:
- There must be no violations of Indian intellectual property laws in the name.
- The name of the LLP must be unusual and one-of-a-kind.
- It must not deceive anyone, particularly the general public.
- No public or constitutional legislation of India may be violated by the LLP’s name.
5. What does capital contribution mean in an LLP?
The amount of capital contribution must be stated by each partner in order to convert a partnership firm into an LLP.
6. Does running an LLP need a director to have a DIN?
An LLP often has partners. Any director designated to fulfil the duties of an LLP must possess a director identification number (DIN). The independent directors of an LLP must adhere to these regulations.
7. How can I join an LLP as a partner?
To join an LLP as a partner, you must fulfil the following requirements:
- The partner must be at least 18 years old.
- There can be no disqualifications of any kind for the partner.
- There must be no criminal liability for the partner
- The partner cannot be bankrupt.
8. What is the primary regulatory body in India for LLP registration?
The Ministry of Corporate Affairs is the primary regulatory body in India for LLP registration (MCA). The Registrar of Firms, however, is the principal regulating body for registering a partnership firm business.
9. Is the LLP able to alter the number of partners in the company?
Yes, once the company has been converted, an LLP cannot change the number of partners or add any new partners.