Partnership to LLP

Converting Partnership to LLP:

A Limited Liability Partnership (LLP) is a popular form of business structure in India, as it offers the benefits of a partnership with limited liability protection for its partners. However, as the business grows and becomes more complex, it may be beneficial for partners to convert their partnership into an LLP, which offers limited liability protection for its partners, as well as other benefits such as flexibility and scalability. This process involves deciding whether to convert, obtaining the necessary legal and financial advice, and then completing the required paperwork and legal formalities. 

What is an LLP partnership?

A Limited Liability Partnership (LLP) operates under the LLP Act of 2008 and was created to address the shortcomings of traditional partnership firms. Unlike these firms, LLPs boast a separate legal identity, necessitated by their compulsory incorporation. Despite being a partnership, LLPs offer perks such as limited liability for partners and the perpetual existence typical of corporations. Essentially, LLPs merge the favorable aspects of corporations and partnerships. Our forthcoming detailed analysis will shed more light on this.

At its heart, an LLP is established through a mutual contract among the partners, which gains legal standing once notarized, and stamped, and the appropriate stamp duty is paid. This contract outlines all agreed-upon terms, including capital contribution ratios, profit distribution, and set liabilities. Furthermore, it governs internal processes like the induction or expulsion of partners, strictly adhering to the contract’s stipulations.

Choosing LLP in Place of Partnership

Choosing an LLP over a traditional partnership firm is a strategic decision rooted in the unique benefits an LLP provides. With advantages in incorporation, management, taxation, and compliance, LLPs stand out as the superior business structure for those embarking on a partnership venture. The comparison table that follows will illustrate the differences between an LLP and a Partnership Firm more vividly, aiding in a more informed decision-making process.

Essential requirements

To convert a partnership firm into an LLP, it’s essential to fulfill key prerequisites for a smooth and lawful transition under the LLP Act of 2008. Here’s a concise guide to the requirements:

• Unanimous Consent of Partners: Secure the agreement of all partners in the current firm to proceed with the conversion.
• Name Approval: Obtain approval for the LLP’s name from the Ministry of Corporate Affairs (MCA), ensuring it’s unique and compliant with MCA’s naming rules.
• Digital Signature Certificates (DSC): Ensure every partner in the proposed LLP has a DSC for authentic document submissions.
• DPIN for Designated Partners: Designated partners in an LLP need a DPIN from the MCA, differentiating from a partnership where all partners manage collectively.
• LLP Agreement Preparation: Create a detailed LLP Agreement that defines roles, responsibilities, and profit shares, in line with the 2008 Act’s stipulations.
• Conversion Documents Preparation: Compile necessary paperwork, including Form 17 for conversion application and Form FiLLiP for LLP incorporation, detailing the firm’s and partners’ information.

Process of transition from a partnership to an LLP

To transition from a partnership to an LLP, follow this streamlined process:

• Name Approval: On the MCA portal, select “RUN – LLP” under services and propose up to two names for your LLP. Submit the form with Rs.200 to reserve your name for 90 days.
• DSC Acquisition: Obtain Digital Signature Certificates for all partners, which are mandatory for e-form authentication during the conversion.
• DPIN Acquisition: Designated partners must secure their Designated Partners Identification Number (DPIN) via the MCA website, providing necessary identification documents.
• Conversion Application: File Form 17 and Form FiLLiP with the ROC, detailing the partnership’s information and each partner’s contributions.
• Certificate Issuance: Post-application, the RoC will issue a Certificate of Registration upon satisfactory review, legally establishing the LLP.
• LLP Agreement Filing: Within 30 days of registration, submit the LLP Agreement in Form-3 to the RoC, outlining the agreed terms among partners.

This procedure ensures a legally compliant and systematic conversion to an LLP.

Forms & Required Documents

• Form 17:
  • Service Request Number (SRN) from RUN – LLP form
  • Proposed LLP name
  • Partnership agreement
  • Details on partner numbers and capital
  • Partners’ consent statement
  • CA-certified assets and liabilities statement
  • Latest Income Tax Return copy
  • Secured creditors’ consent list
• Form FiLLiP:
  • PAN, Aadhar, photo, and address proof of partners
  • LLP’s registered address proof
  • NOC from premises owner
  • Partners’ DSC
  • Designated partners’ DPIN
• Form 14:
  • LLP Incorporation Certificate copy
  • Form FiLLiP’s incorporation documents copy

Benefits:

Switching from a traditional partnership to an LLP can significantly enhance a business’s structure and potential. Here are six compelling benefits of making such a transition:

1. Protection of Personal Assets: In an LLP, the personal assets of the partners are generally protected from the debts and liabilities of the business. This means that if the LLP faces financial difficulties or legal issues, the personal assets of the partners, such as their homes or savings, are not typically at risk to satisfy the LLP’s obligations.
2. Separate Legal Entity: An LLP is considered a separate legal entity from its partners. Therefore, the LLP, as an entity, is responsible for its own debts and obligations. This separation of entity means that the personal finances of the partners are distinct from those of the LLP, providing an additional layer of protection.
3. Limited Liability for Partners’ Actions: Partners in an LLP are generally not personally liable for the negligent or wrongful actions of other partners. Each partner’s liability is limited to their capital contribution to the LLP, and personal assets are shielded from the actions of other partners, subject to certain legal limitations.
4. Business Growth and Risk Management: Limited liability protection in an LLP provides partners with the confidence to take business risks and pursue growth opportunities without the same level of personal risk that may be associated with traditional partnerships. This can foster innovation, investment, and strategic business decisions.
5. Investor Confidence: Limited liability can also enhance the appeal of an LLP to potential investors and external stakeholders. Investors may be more inclined to provide funding or support for the LLP’s activities knowing that the personal assets of the partners are shielded from the risks associated with the business.
6. Succession Planning: Limited liability protection facilitates succession planning and business continuity, as the personal assets of partners are not entangled with the business in the same way they might be in a traditional partnership. This can make it easier to transfer