What are the Basic Requirements for Conversion of Partnership Firm into LLP?

Over the past few years, there has been a growing trend of converting partnership firms into Limited Liability Partnerships (LLPs). It is necessary to follow the provisions of Section 55 of the Limited Liability Partnership Act, 2008, read with the 2nd Schedule, in order to convert a partnership firm into a Limited Liability Partnership.

LLP’s were introduced through the Limited Liability Partnership Act, 2008, and they have emerged as the most popular choice for medium-sized and small-sized businesses. As the name implies, one of the main reasons for converting a partnership firm into a Limited Liability Partnership is that the LLP is a more flexible legal entity, it has a limited liability protection for its partners, it has unlimited partners, and it allows the transfer of ownership easily.

Criteria for Converting a Partnership Firm

The pressure on the personal assets of the partner is less in comparison with the partnership firm. As LLPs are a hybrid of both a partnership and a private limited company, they offer numerous such advantages as well. However, the real reason for converting partnership firms into LLPs is that LLPs offer a major advantage to small and medium-sized businesses as well as suit their organizational needs very well.

A partnership firm can convert into a limited liability partnership if it meets the following requirements:

  • The partners of the partnership firm will become partners of the LLP and
  • LLP will have no other partners than these partners.
  • A valid Digital Signature Certificate (DSC) must be held by each partner and a DPIN must be held by at least two partners before any application can be filed.
  • Registration of all partners under the Indian Partnership Act, 1932[1] is required.
  • Partnership firms should be converted into LLPs with the consent of all partners.

LLP Conversion Requirements

Before converting a partnership firm into an LLP, the partners must mandate the following:

  • Due dates must be met for filing tax returns
  • Conversion must be consented to by unsecured creditors
  • Minimum of two designated partners
  • A minimum of one designated partner must be an Indian resident
  • There can be a single partner and a single designated partner
  • Partner’s contribution of share capital

The Procedure for Converting a Partnership Into an LLP

DIN Application

  • If there are two designated partners – DIN can be obtained along with the incorporation form (FiLLip)
  • The DINs of all other partners should be obtained if there are more than two designated partners.

Approval of Names and Digital Signature Certificates

  • In order to become a LLP, the partners will be required to register via the “RUN-LLP” option on the MCA portal whereby the partners will have to register and reserve their unique names. They will need to apply for the “Conversion of partnership firm to LLP” and submit the required documents with the requisite fee payment.
    Partners of an LLP must possess their own digital signature certificates, which must be attached to the appropriate forms.

Filling Out the ROC Form

For converting a partnership firm into an LLC, you will need to file the following forms with the ROC along with the accompanying documents.

    • Form -17: A conversion application must be submitted by the partners using Form-17 along with a few attachments, including a statement of consent from all the partners, a statement of all the unsecured creditors, a statement of the Company’s assets and liabilities, a declaration of the Designated Partners on part B of Form 17, as well as an acknowledgement copy of the latest income tax return..
    • Form- FiLLiP : This form must be accompanied by documents like a copy of the landlord’s NOC, the utility bill and the dates of all partners who have signed up as designated partners.

Certificate of LLP Registration Issue

According to Section 58(1) of the LLP Act, the Registrar shall register the submitted documents and issue a certificate of registration to a firm that has complied with the provisions of the Second Schedule. The LLP Rules provide that the Registrar must issue a Form-19 registration certificate to partners who convert their partnership into a limited liability partnership.

LLP Agreement Draft

     Contents of LLP shall include:

  • LLP’s name
  • The names of the partners and designated partners
  • All Partnership Rights & Duties
  • A contribution’s form
  • Business description proposed
  • Rules governing the LLP
  • Ratio of profits shared

Know more: Draft Documents for Conversion of Firm Into LLP

LLP-3 e-form filling

Listed below is all the information regarding the LLP Agreement that has been entered into between all of the partners of the LLP.

Conclusion

LLPs were introduced to provide a simple business structure and limited liability for partners at the same time. In light of the various benefits involved, it is definitely worth the time for partners to decide whether to convert their existing partnership into a limited liability partnership. As a result, in today’s competitive market, LLPs are continually expanding and merging and amalgamating with other businesses to share synergies. LLPs have a higher credit rating than partnership firms. Many partnership firms have converted their existing firms into LLP because of the flexibility in managing the business.

 

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