Conversion of Partnership into LLP
A Limited Liability Partnership (LLP) can prove to be a much better business vehicle than a regular partnership. Partners aren’t disadvantaged by personal liability and the LLP does away with the excessive regulations of the Indian Partnership Act, 1932. Furthermore, there are tax benefits, no audit requirements below a certain capital, no cap with regard to number of partners or capital contribution requirements.
After introduction of Limited Liability Partnership (LLP) Act in 2008 many Partnership Firms have started converting their Partnership Firms to Limited Liability Partnership (LLP). The reasons of conversion are obvious, ability to take unlimited number of Partners, Limited Liability, separate legal entity, ease of ownership transfer etc. Because of advantages of Limited Liability Partnership (LLP) over Partnership Firm, LLP has become very popular amongst small and medium sized businesses.
Second schedule of Limited Liability Partnership (LLP) Act deals with conversion of Partnership Firm to Limited Liability Partnership. Before deciding about conversion of Partnership Firm to LLP, few things should be kept in mind.
Preconditions befor conversion of Partnership Firm to LLP
- Consent of all the partners for conversion to LLP must be taken.
- LLP incorporated by conversion of Partnership Firm to LLP must have same partners as they were in the Partnership Firm. Therefore it is suggested that the Partnership Firm should retire all the Partners who do not wish to be a part of LLP and if new partners are to be added, they should be added after incorporation of LLP.
- Before starting the procedure for conversion of Partnership Firm into LLP, the Partners of Partnership Firm should be aware that all the licenses, approvals, registrations and permissions issued in the name of Partnership Firm under law cannot be automatically transferred to LLP. The LLP should after its incorporation apply for all the licenses, permissions, registrations or approvals again.
Procedure for conversion of Partnership Firm into LLP
For conversion of Partnership Firm to Limited Liability Partnership (LLP) first you have to obtained designated partner identification number (DPIN) and all the partners must have Digital Signature Certificate (DSC). The application for allotment of DPIN shall be made online in (E-Form 7). Once Digital Signature Certificate and DIN are obtained, process for conversion of Partnership Firm to LLP can be started.
First requirement for conversion of Partnership Firm to LLP is to get the name approval.For conversion of Partnership Firm to LLP, Form No. 17 with other relevant forms and documents should be filed with the Registrar of Companies. Some of the important documents are as noted below:
- Incorporation Document & Statement in Form 2 filed electronically.
- Consent of all the partners for conversion.
- NOC from Tax Authorities.
- NOC from unsecured creditors and creditors list.
- Financial statements certified as true and correct by Chartered Accountant.
- All documents required to incorporate LLP.
- Any other documents as may be required by the ROC.
On issue of certificate of registration the new LLP thus formed shall within 15 days from the date of registration inform the concerned Registrar of Firms with whom the erstwhile firm was registered under Indian Partnership act, 1932 about such conversion in Form 14 of the LLP Rules & Forms 2008.
Form 14 must be accompanied by the following attachments :
- Copy of Certificate of Incorporation of LLP formed.
- Copy of incorporation document submitted in Form 2 (with the Registrar of Firms).
- Other optional attachments as may be required.
The limited liability partnership shall ensure that for a period of twelve months commencing not later than fourteen days after the date of registration, every official correspondence of the limited liability partnership bears the following :
- a statement that it was, as from the date of registration, converted from a firm into a limited liability partnership; and
- the name and registration number, if applicable, of the firm from which it was converted.