In order to understand how to convert a traditional partnership firm into a Limited Liability Partnership (LLP), we should first know what is the difference between the two of them. So, let us see how their definitions vary:
Definition of Partnership
The term ‘partnership’ is defined as the abstract legal relation between the persons. It is the form of business operation; wherein the partners agree to pool their capital and resources, to run a business carried on by all the partners or any one partner on behalf of all the partners and share profits and losses in the manner prescribed in the agreement called ‘partnership deed’.
In this arrangement, the individuals who have entered into the agreement with each other are called as individual ‘partners’. The material thing symbolising the joint entity for all partners is called ‘firm’ and the name under which business is conducted is called the ‘firm name’. Hence, partnership is the invisible bond among partners while the firm is the concrete form of partners.
Definition of Limited Liability Partnership (LLP)
Limited Liability Partnership, shortly known as LLP is described as a body corporate created and registered under Limited Liability Partnership Act, 2008. LLP is a business vehicle that integrates the advantages of limited liability of a company and the flexibility of the partnership, i.e. for organising their internal composition and operation as a partnership.
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LLP has a separate legal existence, distinct from its partners and has a perpetual succession. If there is any change, in the partners, then it will not influence the rights, existence or liabilities of the entity. Any individual or body corporate can become a partner in LLP, provided they are capable of becoming a partner.
The Conversion From Traditional Partnership To LLP Has Become More Popular – The Benefits Of This Conversion
The shift from traditional partnerships to Limited Liability Partnerships (LLPs) has increased in recent years. The reason behind this is that LLPs offer more flexibility, unlimited partners and the like. But the real driving force behind the shift is due to the fact that LLPs offer a major advantage in terms of limited liability. The strain on the personal assets of the partner is put to rest when it comes to LLPs since they are a hybrid of both a partnership and a private limited company. Small and medium-sized businesses find this type of organisation structure to suit their needs very well.
The advantages of the Limited Liability Partnership (LLP) form of business outweigh those of the traditional partnership. Limited liability, perpetual succession and unlimited partners are the key incentives for a partnership firm to convert itself into an LLP.
Conditions For Converting a Partnership Firm to LLP
There are some basic conditions that should be followed while effecting the conversion of partnership into LLP:
The conversion of a partnership firm to LLP shall be done as per Section 55 of the Limited Liability Partnership Act 2008 read with Schedule II of the Act.
All the partners of the firm shall be the partners of the LLP, which means there shall be no new partners or the existing partners cannot cease to be partners while making the application
It is mandatory for all Partners to hold a valid Digital Signature Certificate (DSC) and at least two partners must have a DPIN before making such an application.
The partnership firm to be converted must be registered under the Partnership Act, 1932.
All the partners’ consent must be obtained.
The LLP must have the same partners as that of the partnership firm. Any partner that wishes to be removed from the LLP may be removed after the conversion is complete.
Director Identification Number (DIN)/Designated Partner Identification Number (DPIN) must be obtained for all Designated Partners.
Procedure for Conversion of a Firm From Partnership to LLP
Below is the step-by-step procedure for the conversion:
- Step I – Name Approval and DSC
a. Name Approval
Register and subsequently log on the MCA portal.
Under the MCA Services tab, the “RUN – LLP” option is to be selected.
RUN stands for Reserve Unique Name.
In the dropdown list, the option “Conversion of Firm into LLP” is to be selected.
Subsequently, there are two Proposed Names for the LLP to be given.
Further, any supporting documents may be uploaded in the PDF format, after which the “Submit” button is to be clicked on.
The page is redirected to a payment gateway where the fees amounting to Rs. 200 is to be paid for the form.
The reserved name then holds a validity period of 90 days.
b. Digital Signature Certificates
In order to proceed past the Name Incorporation stage, it is mandatory that the Designated Partners of the LLP possess their very own Digital Signature Certificates.
Every e-form requires the DSCs of the Designated Partners to be affixed to the relevant forms in order to ensure a successful submission.
- Step II – Filing of the Forms with the Registrar Of Companies (RoC)
a. Form 17 (Application and Statement for conversion of a firm into LLP)
The application form has to be filled in with information such as:
Service Request Number (SRN) of the RUN – LLP form.
Name of the Proposed LLP.
Name, address, registration and partnership agreement details of the firm.
Details regarding the number of partners, capital contribution to be provided.
Secured creditors details.
The following attachments are to be provided:
Statement of Consent of Partners of the firm.
Statement of assets and liabilities of the firm certified by a Chartered Accountant in practice.
Copy of the latest Income Tax Return acknowledgement.
List of all the secured creditors along with their consent.
Any other supporting information (optional).
b. Form FiLLiP (Form for incorporation of LLP)
The application form is to be filled in with:
Details of the RUN – LLP which will be auto-filed.
Registered office address and email id of the LLP.
Office of the Registrar.
Nature of business activities.
Details of the partners, designated partners, their DINs, DPINs and PANs.
Amount of contribution by the partners in the LLP.
Attachments to be provided are:
Proof of address of the registered office of the LLP.
NOC from the property’s owner and copy of utility bills (not more than 2 months old).
Approval of any regulatory authority, where necessary.
Details of any LLP/Company where a designated partner is also a director/partner.
Proof of identity and address of the applicants.
Where the name of the LLP is identical to any existing Company/LLP, a copy of the Board Resolution or Consent of the existing LLP serving as a No Objection Certificate.
Both the forms are to be e-signed by the proposed designated partners and certified by a Cost Accountant, a Company Secretary, or a Chartered Accountant or any of whom must be in whole-time practice. The fee to be paid will vary in relation to the amount of capital contribution.
- Step III – Issue of Registration Certificate
The Certificate of Registration of the LLP shall be granted by the Registrar on approval of the application.
- Step IV – LLP Agreement
The LLP Agreement has to be submitted in Form LLP – 3 within 30 days of incorporation of the LLP. It shall contain the following particulars:
Name of the LLP
Name of the designated partners and other partners
Form of capital contribution and profit sharing ratios
Rules governing the LLP
Rights and duties of the partners
- Step V – Intimation to the Registrar of Firms
The Registrar of Firms has to be given intimation regarding the conversion into LLP and the related details of the LLP within 15 days from the date of the incorporation in Form – 14. The form has to be accompanied by:
– Copy of the LLP Incorporation Certificate.
– Copy of the incorporation documents submitted in Form FiLLiP. Once all these steps are complied with, it can be said that the conversion from a partnership to LLP is complete in all respects. Nevertheless, it is to be noted that the old licenses and permits do not transfer over to the LLP. They have to be freshly applied for post-conversion.
Documents to be Filed
A statement shall be filed by all the partners with the Registrar, stating the name and registration number (if any) and the date on which the firm was registered under the Indian Partnership Act 1932 or any other law.
The incorporation document along with the statement in the prescribed form made by a chartered accountant/company secretary/cost accountant/advocate who is engaged in the formation of the LLP and anyone else who subscribed to the incorporation document shall be filed with the Registrar stating that all the requirements in respect of incorporation have been complied with.
About The Registration
The Registrar, on receiving the relevant documents, may accept or refuse to register the LLP. If all documents are found correct in accordance with the provisions of the act, the Registrar shall issue a certificate of registration. The LLP will in less than 15 days of registration inform the Registrar of firms with which it is registered in Form 14. In the event of a refusal of registration by the Registrar, an appeal can be made with the tribunal.