Conversion of Partnership to LLP - An Overview
A traditional form of partnership is governed by no form of limited liability and separate legal entity. There is more amount of flexibility when it comes to an LLP.
These facilities are not present in a traditional partnership. Hence going for the process of conversion of partnership to LLP is quite the right choice if the partners wish to have some form of flexibility. However, there is a formal procedure for the same to achieve the above process.
Features of a Partnership
A Partnership firm is governed by the principles of the Indian Partnership Act, 1932. The following are the essentials features of a partnership:
- An association or agreement between two or more individuals to share the profits and losses of a particular business or a venture.
- There is a separate legal document known as a partnership deed where the profit sharing ratios of the partners are specified.
- There is no form of limited liability status enjoyed by the partners of a partnership firm. Hence conversion of partnership to LLP would be an ideal choice, if the partners want limited liability status and more flexibility.
Why Conversion of Partnership to LLP is required?
In view of all the above drawbacks offered in a traditional form of partnership, the conversion of partnership to LLP would be the best option available. An LLP has a separate legal entity which is independent of the partners of the firm.
The liability of the partners is limited; hence any creditors would not come after the partners for any debts or dues owned by the partnership firm.
A LLP has the benefits of a traditional partnership and a private limited company. Hence, this form of hybrid entity is suitable for individuals where scope for flexibility is present.
Benefits of Conversion of Partnership to LLP
The following benefits can be achieved through conversion of partnership to LLP:
- More Investment
Conversion of partnership to LLP would improve the amount of investment in the LLP. Through the process of conversion, the reputation of the entity would increase making more amounts of investors invest in the LLP.
- Perpetual Succession
The exit or death of a partner does not result in the dissolution of the partnership firm. The principle of perpetual succession would be applicable to the LLP.
- Limited Liability
Conversion of partnership to LLP would automatically grant the status of limited liability to the partners. Limited liability would afford some form of independence to the partners of the firm. Limited liability separates the liability of the partners from the firm.
- Management Decision
Conversion of partnership to LLP increases the amount of flexibility and decision making process in a LLP when compared to a traditional partnership firm.
- Foreign Direct Investment
The government of India has relaxed the regulations related to the FDI in an LLP. There is leniency for FDI in an LLP when compared to a partnership.
Eligibility Criteria for Conversion of Partnership to LLP
The following eligibility criterion has to be satisfied for conversion of partnership to LLP:
Procedure for Conversion of Partnership to LLP
The following procedure has to be considered for conversion of partnership to LLP:
- Obtain DSC (Digital Signature Certificate of Partners)
In the first step of conversion of partnership to LLP all the partners have to get the digital signature certificate.
- Obtain DIN or the DPIN
In the second step; the partners have to get the designated partner identification number. When a DPIN is issued for the partnership, the number would be valid for life.
- Approval of Name
In the next step, the partners have to file the Form FiLLip. This step must be carried out by the partners of the partnership firm to convert into an LLP.
- Filing the Form-3
All the information mentioned in the LLP agreement must be filed in Form 3. Along with this, the information related to the LLP must be stated. The original copy of the LLP agreement must be attached with this. The following information must be included in the LLP agreement. The following information has to be filed with Form-3:
• The information on the LLP including the name, information on the designated partners, amount of partners of the firm, the sharing ratios of the individual partners.
• Any other information relating to the LLP.
• Rights and Duties of the Partners of the Firm.
• Contribution of Capital related to the partners.
- Filing the Form 17
This form which has to be filed by the partners with respect to the application for conversion of partnership to LLP. The declaration has to be signed by all the individual partners of the firm. The digital signature of every respective partner is required for the same process. This must also be signed by a chartered accountant, company secretary or a cost accountant. With this form some documents must be submitted:
• Consent of the partners of the firm.
• Certified statement of the assets and liabilities of the firm.
• Information pertaining to the creditors of the company.
• Consent of all the partners that the conversion process is carried out by the firm.
• Copy related to the Income Tax Returns of the Firm.
- Incorporation Certificate
After this process the Registrar would provide the certificate of incorporation to the partnership. This would mean that all the interests, assets and liabilities would be transferred to the LLP. However, if the firm has any new form of licenses or registration, then they would have to apply for new licenses and registrations.
- Intimate Registrar of Firms
In the final step, the partners of the LLP have to intimate the Firms about the change of status of the partnership to LLP. Form 14 must be submitted to the Registrar within 15 days of this process.
Documents for Conversion of Partnership to LLP
The following documents are required for conversion of partnership to LLP:
- Name of the Proposed LLP
- Information related to the Partnership Deed of the partnership firm
- Digital Signature Certificate of the Respective Partners
- Authorised Capital of the LLP
- Any information related to the contribution by the partners
- Registered office information of the partnership limited entity
- Identification Documents of the Partnership- Voter ID and other related information
- Utility Bill of the Partnership Firm- Electricity Bill/ Water Bill or any other Bill
- Evidence or Proof of the Registered Office of the Partnership (Lease deed/Ownership Documents) of the property
- Permanent Account Number (PAN) of all the Partners of the Partnership
- Audited Information related to the Partnership
- Statements such as Bank Details of the Partnership
- Main objects of the Partnership Business
- NOC of the owner of the premises in case the premises is leased
Post Incorporation Documents
- Copy of the Certificate of Incorporation of the LLP
- Documents which are submitted for FillIP