Company Conversion

Procedure for Conversion of Partnership Firm to Limited Liability Partnership (LLP): A Complete Guide

Limited Liability Partnership or LLP has expanded as one of the popular business structures in India. The second schedule of the Limited Liability Partnership (LLP) Act deals with the conversion of Partnership Firm to LLP. The Limited Liability Partnership or LLP is generally preferred over the regular partnership business as it is more beneficial for the partners involved. LLP is a separate legal entity with a mandatory registration procedure with the Central Government, which is not the case with a partnership firm. Secure registration procedures, ease of maintenance and minimal compliance requirements make it an ideal business structure for several small and medium-sized businesses. Hence conversion of a Partnership Firm to Limited Liability Partnership is a good decision to protect the partner’s rights and also to limit their liabilities. Entrepreneurs in the present time are going for the conversion of a partnership firm to LLP to avoid the risk partnership brings along.

Breaking Down LLP and Partnership

Partnership Firms

• Partnership firms are registered under the Indian Partnership Act, 1932. 
•  The registration is not compulsory in a Partnership deed.
•  Nevertheless, partnership firms minimize the hassles of legal compliances. 
• The partners of a Partnership firm are held accountable for all the partnership liabilities. 
• There is no varied consideration for the company and its partners as legal entities in a partnership deed.

Limited Liability Partnership or LLP

• LLP  is registered under the Limited Liability Partnership Act,2008
•  The Partners of an LLP as prescribed under the Act are not personally liable for the partnership which helps in the discharge of liabilities equally. 
• However, a partner has a limited liability which is equal to the amount of capital contribution to the LLP. 
• Hence, LLP and the partners of respective LLP are considered as separate legal entities.

What is the Eligibility Criteria for Conversion of Partnership Firm to LLP

The basic eligibility criteria for conversion of Partnership Firm to LLP are mentioned below:

• The Partnership firm must be registered under the Indian Partnership Act, 1932.
• In case the Partnership firm is not registered under the Indian Partnership Act, 1932 then the name of the statute under which it is registered must be mentioned at the time of conversion.
• All the partners of the Partnership firm must give their consent.
• The Limited Liability Partnership or LLP must have the same partners as they were in the partnership firm. The partners not willing to continue with the LLP shall cease to be a partner. If any new partner is to be added, then it should be done after completion of the conversion process and formation of LLP.
• The newly formed LLP cannot use approvals, licenses, etc. of the previous partnership firm. Therefore, it must apply for all the licenses, permissions, registrations and approvals again.

What are the steps for Conversion of Partnership Firm to LLP?

There are six basic steps for the conversion of Partnership Firm to LLP or Limited Liability Partnerships.

Step 1- Obtain DSC for Partners

Generally, the partners in a partnership firm do not have a Digital Signature as the same is not necessary for the registration of a partnership firm. However, if the partners of a partnership firm decide to convert it into a Limited Liability Partnership or LLP, then Digital Signatures would be required for all the partners.

Step 2 – Requirement of DIN or DPIN

DIN or Director Identification Number/DPIN is a unique number issued by the Central Government. Any person who wishes to be appointed as a designated partner in an LLP needs a DPIN or Designated Partner Identification Number. This number is issued to any person only once, which can be used throughout his life without any compliance.

Step 3- Name Approval

After the DIN process is over, a person can apply for the reservation of the name of the proposed LLP through MCA or the Ministry of Corporate Affairs. Before filing forms for the conversion of Partnership Firm to LLP approval must be obtained with regard to the name of the LLP.

Step 4- Filing LLP Form 17 

Application and statement for the conversion of Partnership firm to LLP are filed in LLP Form 17. The application is filed along with the incorporation application and subscribers sheet during the conversion of the Partnership firm to LLP. The following documents need to be attached in Form -17:

1. A statement of consent of partners of the partnership firm regarding conversion.
2. A duly certified copy of the statement of assets and liabilities by a Chartered Accountant.
3. A Copy of acknowledgment of the latest Income Tax Return.
4. Clearance or No Objection Certificate (NOC) from tax authorities must be obtained.
5. List of all the secured creditors attached with their consent for the conversion of Partnership Firm to LLP.

Step 5- Filling of Form-3

Form 3 consists of all the information regarding the LLP agreement. LLP Agreement must be attached as a document in this form.

Step 6- Filing for Incorporation & Conversion of Partnership Firm into LLP

Form Fillip to be signed for Incorporation of the Limited Liability Partnership Firm. The following documents and information are required for filing of form fillip:

1. Name of the proposed LLP.
2. DSC of the designated partners of the firm.
3. Capital of proposed LLP and contribution of the proposed partners.
4. Phone Number and e-mail id of the proposed partners.
5. Address proof of the proposed partners.
6. Latest utility bill of the registered office. 
7. PAN of all the designated partners of the firm.
8. Bank statement of Designated partners of the firm.

Attachments to be made in Form Fillip:

• Subscriber sheet, including the consent of partners.
• Address proof of registered office of the LLP including NOC or No Objection Certificate from the owner.
• Proposed Main Object.
• Details of LLP or any Company in case the proposed Designated Partner is Director or Partner of any other Company or LLP.

What are the Documents Required for Conversion of Partnership Firm to LLP?

The following documents are required for conversion of Partnership firm to Limited Liability Partnership:

Benefits of Conversion of Partnership Firm to LLP

• Limited Liability of Owners
• Separate Legal entity
• Tax Benefits
• Raising Capital

What is the next step after the Successful Conversion of Partnership Firm to LLP?

On successful conversion of Partnership firm to LLP, the Registrar shall register the documents and issue a certificate of registration stating that LLP is on from the date specified in the certificate. The LLP shall inform the concerned Registrar of Firms regarding the conversion and particulars of the LLP within 15 days from the date of registration. All the properties, interests, assets, rights, privileges, etc. of the partnership firm will be transferred to the LLP.  The Partnership firm shall be deemed to be dissolved if registered under the Indian Partnership Act, 1932^[1], and also to be removed from the records maintained under that Act.

Conclusion

On conversion, the partners of the LLP shall be bound by the provisions of the second schedule of the LLP Act. LLP provides a better business structure than a regular partnership firm. Further, there are more tax benefits, below a certain capital no audit is required, no limit with regard to a number of partners or capital requirements. However, any approvals, license or permit is not automatically transferred to LLP, fresh registration and license are needed. The process of conversion of a Partnership Firm to LLP is a lengthy procedure, and it is advisable to take professionals to help in order to make sure that all formalities are dealt with, and all procedures are completed.

Also, Read: How to Change Business Entity? – Detailed Conversion Procedure of Different Business Entities