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Overview

Partnership firms are at a disadvantage when compared to the newly introduced Limited Liability Partnership (LLP) as they do not provide limited liability protection for the partners, separate legal entity status, ability to take on unlimited number of partners and ease of ownership transfer. The introduction of LLP’s through the Limited Liability Partnership Act, 2008 has made LLPs the premier choice for small and medium sized businesses. Inciting tremendous interest among Partners of a existing Partnership firms to convert their firms into LLP.

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 reason behind the shift is due to the fact that LLPs offer a major advantage in terms of limited liability. 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.

Procedure of Conversion of a Firm from Partnership

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 and 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

Registrar on the approval of the application shall grant the Certificate of Registration of the LLP.

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 required for LLP registration in India

The method of LLP registration in India does not require much legwork when it comes to documents.

To Be Submitted By Partners

  • Scanned copy of PAN Card or passport (Foreign Nationals & NRIs)
  • Scanned copy of Aadhar Card/ Voter's ID/Passport/Driver's License
  • Scanned copy of latest bank statement/telephone/mobile bill or electricity/gas bill
  • Scanned passport-sized photograph Specimen signature (blank document with signature [partners only])
  • Note: Any one of the partners must self-attest the first three documents. In the case of foreign nationals and NRIs, all the documents must be notarized (if currently in India or a non-Commonwealth country) or apostilled (if in a Commonwealth country).

For Registered Office

  • Scanned copy of the latest bank statement/telephone/mobile bill, or electricity or gas Bill
  • Scanned copy of the notarised rental agreement in English
  • Scanned copy of No-objection certificate from the property owner
  • Scanned copy of sale deed/property deed in English (in case of owned property)

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.

 

Effect of Registration

  • Once the Partnership is converted into a LLP, the Partnership firm is deemed to be dissolved and the name of the partnership firm is removed from the register of Registrar of Firms.
  • An LLP shall come into existence by the name stated in the certificate of registration.
  • The assets, liabilities, rights, privileges, obligations of the Partnership firm is considered to be wholly transferred to the LLP and the conversion doesn’t affect any existing contracts, employment, agreement, etc.
  • The Partners will enjoy limited liability protection for all transactions conducted after the conversion of partnership into LLP. However, the Partners will continue to be personally liable for all business conducted as a Partnership prior to the conversion into LLP.
  • In addition, after the conversion to LLP, the LLP for a period of not less than 12 months from date of conversion, must include a statement that it was converted from a Partnership into a LLP in all official correspondence.
  • All proceedings which were pending against the firm may be enforced against the LLP.
  • Every existing appointment of the firm or authority conferred on the firm shall be as if it were conferred on the LLP.

Benefits of partnership to LLP conversion

  1. Limited Liability of Owners: The liability of Partners is limited to an extent of capital contribution as agreed by the partners in the LLP Agreement. The loss or debt of LLP cannot be assigned to partners even at liquidation. Further, one partner is not held responsible for the actions of negligence or misconduct of any other partner.
  2. Separate legal entity: The partnership is not a separate legal entity. In case if the partner dies, retires, or in any other case has to leave the firm, the partnership ceases to exist. In this case, a new partnership has to be formed; but this is not the case with a limited liability partnership. Limited liability partnership is a separate legal entity.
  3. Tax benefits: LLP saves the Dividend Distribution Tax, Minimum Alternative Tax, and Income Tax because interest and remuneration are paid to partners as a salary that is payable to directors.
  4. Raising Capital: Raising Capital is easier in the LLP structure as it allows a limited partner to participate without taking on any accountability, unlike the general partnership where all common partners have unrestrained liability.
  5. Multidisciplinary LLPs: Professionals of various disciplines can work together in an LLP, which is an exclusive feature and an advantage in itself.

Partners Liability before Conversion

Every partner will be jointly and severally liable for all the liabilities and obligations of the firm which were incurred in the Partnership Firm. If any partner discharges the obligation, then he shall be indemnified by the LLP.

Conversion Notice

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 does not provide the conversion notice then 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.

Transfer of Licenses, Registrations and Property

Licenses, approvals, permits or registrations issued in the name of the Partnership firm will not be transferred automatically to the LLP. In addition, if there were any properties registered under the Partnership firm prior to the conversion, the LLP must approach the concerned authorities and take steps as prescribed to transfer the assets to the LLP. Therefore, it is important for the Entrepreneur to keep in mind various other aspects and clarify procedural aspects with the concerned licensing or registration authorities prior to beginning the process for conversion into LLP.

Disclaimer

The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

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