Most of the small business owner tends to start the business as a sole proprietor & that is how the Indian mindset has been framed for a long time. This is because Sole proprietorship is the easiest, common and the simplest form of any business structure. This business form has its heavy advantages such as an easy formation, limitation of paperwork, less amount of capital needs, and minimum compliance requirements.
Once the business starts spreading across various location and gets its level of reach, the further logical move will be to widen the operations to a greater extent depending on the current business needs & marketing needs. When the business starts to grow more than you expect or it still is stagnant at a point, you have to take a transformation state to your business from proprietorship to an LLP.
Limited liability partnership (LLP) was introduced in India through the LLP Act, 2008. The real concept behind undertaking the LLP was to supply a hierarchical structure that is as easy as to maintain and to reduce the liability factor when compared to a sole proprietorship structure. The LLP has the joint advantages of both the Company and Partnership firm into one form of organization and provides you with a hybrid structure.
So, the conversion of sole proprietorship into LLP is the wise decision when the business grows. Under this LLP, one partner is not either responsible or liable for another partner’ bad code of conduct or negligence. This LLP also supplies the long-term limited liability protection for the owners from being in the debts of LLP. The above mentioned are some of the reasons why the LLP are preferred by professionals, small businesses, micro and macro businesses.
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Choosing to Register an LLP
As soon as the income from business increases, several sole proprietors become aware of the need to differentiate their accounts and tax filings from that of the business. There are many other reasons why converting your sole proprietorship into a private limited company is a wise decision.
This conversion lets you avail the dual benefits of keeping your goodwill and brand value in touch while enjoying the legal existences.
Other key benefits include:
- Business expansion
- Better financing options
- Greater public visibility and acceptance
- Asset protection
- Managing risks
- Corporate tax benefits
Documents required to convert into LLP
- PAN Card – Pan is a mandatory document while converting the business needs across formats. This should include the PAN Card of every partner of the business who is a part of the LLP (Foreign nationals may supply their passport).
- Address Proof – Each of the partner’s address proof is to be submitted in the process to convert a business from a sole proprietorship to an LLP. This address proof can be in the formats such as Aadhar card or Voter ID or Passport or Driving License.
- Photograph – A newly taken picture of each of the partner in the LLP list. The picture shall be in the form of formally dressed and groomed, the size of this picture must be a passport size.
- Business Address Proof – You must submit the organization address and it could in any of these formats such as an electricity bill or telephone bill.
- Rent agreement – If the registered office of your business is in a rental building, you should provide rental agreement and No Objection Certificate from the owner.
- NRI/ Foreign National – If any of your partners is either an NRI or a foreign national, all the documents of the partner should be notarized.
Steps Involved In The Conversion Of A Proprietorship Into An LLP
- DSC (Digital Signature Certificate) – DSC is required and to be obtained by the designated partners of LLP. To get this DSC, the documents that are supposed to be submitted include Identity proof & Address proof.
- Apply for DPIN(Designated Partner Identification Number) – DPIN is a pre-requisite for the conversion process. The designated partners should process or apply for this unique DPIN number and receive a provisional DPIN. For obtaining DPIN, the partners should to furnish photograph, proof of identity and proof of address.
- Application for name availability – The application to convert the business as an LLP is required to be filled in the FORM – 1 for the availability of a name for the organization. The partner can suggest a maximum of 6 names in the order of priority and then the application is to be submitted to the respective ROC for name approval.
- Changes if any proposed by ROC – If there is any change in the name application being proposed by the ROC, it must be complied with and If the ROC finds the name is not apt for the business then he/she may reject the name.
- Documents required – Several documents are to be given to the ROC. The MOA or AOA is required to be sent soon after getting it vetted by the designated partners and the same must be sent for the printing purpose. A Stamping is also required for various documents like,
- LLP Agreement
- Form 3
- Subscription sheet signed by the promoters
- Duly stamped LLP Agreement
- Proof of Address of Registered Office
- Other forms required – Other forms such as Form 32 and letter of Authority or POA must be filed along with the ROC.
- Final process – To fill all the above-mentioned mandatory documents with the ROC, you should follow up with the ROC and make the necessary changes to the MOA or AOA or other specified documents as prioritized by the ROC. The mandate steps to be followed are given below,
- Upload the forms – All the duly filled forms must be uploaded on the MCA site. For the forms, online service is available.
- Payment of fees – The fees must be paid for the incorporation process.
- Collect the Certificate of Incorporation – After the ROC is satisfied that all the necessary steps have been followed properly and no errors have occurred during the initial to final process then he/she will provide the Certificate of Incorporation to the Company.