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 ahybrid 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.
1. Key Differences Between a Partnership and an LLP
Separate Legal Entity
Unlimited. Personal assets of the partners are also liable.
Limited to the extent of their capital contribution.
Books of Accounts
Should be prepared according to the provisions of the LLP Act.
Number of Members
Maximum 20. In the case of
No limit on the maximum number of partners.
Digital Signature Certificate (DSC)
No such requirement.
All designated partners of the LLP should have a Digital Signature which is a prerequisite for e-filing.
2. Why LLP Over a Partnership Firm?
Apart from the key differences, there are a few features that make the LLP a more desirable option over a standard partnership firm:-
- Freedom of Management/Flexibility: The partners are given a reasonable level of flexibility in conducting the operations and running the day to day affairs of the LLP. The LLP Agreement is not mostly influenced by the Limited Liability Partnership Act, 2008, which means to say that the Act is comparatively flexible on how the agreement can be drawn up.
- Perpetual Succession: Unlike in the traditional partnership, the death of the partner does not affect the existence of the LLP. The separate legal entity feature of the LLP allows it to carry on business.
- Investment Attraction: Foreign investors and venture capital funds look at LLPs as an investment opportunity as it has a corporate structure and is more organised as opposed to traditional partnerships.
- Multidisciplinary LLPs: Professionals of various disciplines can work together in an LLP, which is an exclusive feature and an advantage in itself.
3. Conditions For Converting a Partnership Firm to 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.
4. Procedure for Conversion of a Firm From Partnership to LLP
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 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.
- Subscriber’s consent.
- 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.
5. 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.
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.
7. Effect of Registration
- An LLP shall come into existence by the name stated in the certificate of registration.
- All the assets, liabilities, rights and privileges which vested in the firm shall vest in the LLP.
- The firm shall stand dissolved, and if it was registered under the Indian Partnership Act 1932, it shall be removed from the records maintained.
- All proceedings which were pending against the firm may be enforced against the LLP.
- Any order or judgement either in favour or against the firm may be enforced against the LLP.
- All existing contracts and agreements in which the firm was a party shall continue to be in force with the LLP as the party.
- Every existing appointment of the firm or authority conferred on the firm shall be as if it were conferred on the LLP.
8. Partners Liability Before Conversion
Every partner will be jointly and severally liable for all the liabilities and obligations of the firm which were incurred before such conversion. If any partner discharges the obligation, then he shall be indemnified by the LLP.
The LLP shall provide for a period of 12 months, which begins from a date not later than 14 days after registration:
- A statement that it was converted from a firm to a LLP as from the date of registration mentioned and
- Name and registration number(if any) of the firm from which it was converted in every official correspondence of the LLP.
In case the LLP contravenes the above provision it shall be punishable with a minimum fine of Rs 10,000 and a maximum fine of Rs 1,00,000. In case of continuing default, the minimum fine shall be Rs 50 per day, and the maximum shall be Rs 500 per day.
10. LLP Form No 17
This form is an application and statement for the conversion of a firm into an LLP. The form is divided into 2 parts: Part A: Application and Part B: Statement.
11. Information to be Furnished in Part A: Application
- SRN of the Reserve Unique Number (RUN) form if it is already filed. If not the proposed name of the LLP.
- Name and address of the firm.
- Details of registration of the firm either under the Indian Partnership Act 1932 or under any other law.
- Date of agreement which provides the details around the formation of the firm.
- The total number of partners in the firm.
- The total number of partners in the LLP, which shall be auto-populated from the details provided as per the previous proint.
- Total capital contribution of the firm.
- Details of the consent of all partners.
- Details of all partners of the LLP being shareholders of the company and no one else.
- Details of the income tax return filed under the Income Tax Act 1961.
- Details of any pending proceedings in any court/tribunal/any other authority.
- Whether any previous application for conversion has been refused by the Registrar. If yes, SRN and reasons for refusal need to be provided.
- Details of any continuance of any conviction/order/judgement of any court/tribunal/other authority in favour or against the firm.
- Whether there are any secured creditors. If yes, whether the consent of all secured creditors has been obtained for the conversion.
- Whether any clearance or approval is required for the conversion into LLP. If yes whether the approval has been obtained.
12. Part B: Statement
1. Contents of the declaration
- Consent by the partner for conversion from firm to LLP.
- The partner shall state that he or she shall be liable both jointly as well as severally for all liabilities incurred before the conversion
- He or she shall state:
- That all the requirements as per the LLP Act 2008 and the rules have been complied with.
- That all the partners of the firm are the partners of the LLP and no one else.
- That all the required approvals have been obtained.
- That the consent of all secured creditors has been obtained.
- That all the information provided in the form is to the best of his knowledge and belief.
- Statement of Assets and Liabilities of a firm duly certified as true and correct by a Chartered Accountant in practice.
- Statement of the consent of partners of the company.
- List of all the secured creditors along with their consent to the conversion.
- Copy of acknowledgement of the most recent income tax return.
- Approval from any authority/body.
- Optional attachment(s)-if any.
The e-form shall be digitally signed by a designated partner with details of DIN/DPIN of the designated partner and PAN number in case none of the designated partners have a DIN. The certification shall be done by a Chartered Accountant/Company Secretary/Cost accountant in full time practice. Selection of associate or fellow needs to be done, and membership number/certificate of practice number shall be provided.
Intimation to the Registrar shall be provided in Form 14. The following information shall be provided:
- Name of the firm.
- Principal address of the firm.
- Details of the registration of the firm either under the Partnership Act 1932 or any other statute.
Particulars of the LLP into which the firm has been converted shall also be provided. The copy of the certificate of incorporation of the LLP shall be attached, and the partner shall digitally sign the form.
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