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How can you convert a Partnership Firm into an LLP?

Limited Liability Partnerships (LLPs) have become more popular in recent years as an alternative to conventional partnerships. This is due to the fact that LLPs provide further benefits like flexibility, limitless partners, etc, over partnership firms. However, the actual reason for the transition is that LLPs provide a significant benefit in terms of limited liability. Since LLPs are a hybrid of both a partnership firm and a private limited company, the burden on the partner’s personal assets is alleviated. The needs of small and medium-sized organizations are well-served by this form of organizational structure.
Convert Partnership Firm Into Llp
The Limited Liability Partnership (LLP) business structure has more benefits than the conventional partnership. The main factors that influence a partnership firm’s decision to become an LLP are limited liability, perpetual succession, and unlimited partners. If you also want to convert your partnership firm into an LLP, continue reading as you will get all the information in this blog.

Table of Contents

What is a Limited Liability Partnership?

A type of corporate entity is known as a limited liability partnership (LLP) when it combines the best features of a corporation’s legal protections with those of a partnership. Unlike a firm, the partners of an LLP are not jointly liable for the debts and other responsibilities but are individually accountable for their own legal obligations.
Businesses with multiple owners that desire to keep some level of independence and control while splitting the company’s gains and losses are best suited for this form of business structure. A limited liability partnership is to be formed by transferring a partnership firm.
Two or more people must agree to establish a limited liability partnership by submitting the prescribed application and documentation to MCA. The major details and documents required include the name of the LLP, Certificate of Incorporation containing a list of all the partners’ names and addresses, and an LLP agreement outlining how revenues would be distributed among the partners.

Why an LLP instead of a Partnership Firm?

Owing to a number of distinct features, the LLP has a few advantages above a typical partnership firm, including the following:
  • Flexibility and Freedom of Management – The partners of an LLP are granted a considerable amount of freedom in how they manage the day-to-day operations of the LLP as the Limited Liability Partnership Act of 2008 does not specify the manner in which the LLP Agreement is drafted.
  • Permanent Succession – Unlike in a partnership firm, the demise or departure of a partner in an LLP has no impact on the LLP’s . The LLP’s ability to operate as a separate legal entity defines its feature of succession. 
  • Attractive Investments – Foreign investors and venture capitalists are drawn to LLPs as an investment opportunity because they are more organized and have a structure extremely similar to body corporates. 
  • Multidisciplinary LLP- An LLP allows professionals from different disciplines and fields to collaborate for the fulfillment of several goals.

Process of Converting a Business Firm from a partnership to an LLP

The approval of the name

Register and log in to the MCA portal. You must choose the “RUN – LLP” option under the MCA Services menu. Reserve Unique Name is referred to as RUN. From the dropdown list the “Conversion of Firm into LLP” option must be chosen. A form appears where you have the option to propose two names. Additionally, you can submit the prescribed supporting documents in the digital format before clicking the “Submit” button. The page is then forwarded to a payment channel where the application fee of Rs. 200 is to be made. After that, the reservation of the name takes approximately 90 days.
  • It is ideal that all designated partners of an LLP possess Digital Signature Certificates in their names. This is because almost every e-form filed in the name of the company requires the DSC of the designated partners accompanied with it. However, if this is not the case, at least the director authorized to file the application for registration must possess a DSC before beginning the process of registration.

Submitting the Form and Documentation to the RoC

Two forms are required to be filed for converting a partnership firm into an LLP. The first is Application and Statement for conversion of a firm into LLP or Form 17 and the second is the Application for Incorporation of an LLP or Form FiLLiP.
Information required to be entered in form 17 include the following:
  • RUN – LLP form Service Request Number (SRN).
  • The proposed LLP’s name.
  • Details of the firm’s name, address, registration, and partnership agreement.
  • Information on the number of partners and the required capital contribution.
  • Details on secured creditors.
Information required to be entered in form FiLLiP include the following:
  • Information on the RUN – LLP will be automatically filed.
  • The LLP’s registered office address and email address.
  • The Registrar’s Office.
  • Nature of commercial operations
  • Details of the partners and designated partners like their PAN, DPIN, and DIN.
  • Contributions of each partner to the LLP.
The proposed designated partners must digitally sign both forms, and an independently practicing Cost Accountant, a Company Secretary, or a Chartered Accountant must verify and certify their authenticity. The application fee shall depend on the authorized capital of the LLP.

Issue of Registration Certificate

After the submission of the application, the RoC examines it thoroughly. Only after he is satisfied with the authenticity of the application, he shall issue a Certificate of Registration and a DPIN in the name of the LLP. If the application filed is incorrect or incomplete, the Registrar shall deny registration, and the applicant will have to file a fresh application for the purpose.

LLP Agreement

Within 30 days from the date of incorporation of the LLP, the LLP Agreement must be filed to the RoC in Form LLP-3. The LLP agreement must include the following information:
  • Name of the LLP
  • Names of all the partners and designated partners
  • Capital and profit-sharing ratios 
  • Rights and obligations of partners
  • Rules regarding the day to day operations of the LLP

Intimation to the Registrar of Firms

Within 15 days of the date of incorporation, Form 14 must be submitted to the Registrar of Firms with notification of its conversion into an LLP, along with any other pertinent information about the LLP. The form must be submitted with a copy of the incorporation form FiLLiP, a copy of the documents submitted with it, and the LLP Incorporation Certificate thereby obtained.

Conclusion

There are many important things to contemplate about when converting your partnership into an LLP. Your formation documents must be revised in the first place to reflect the modification. You must also alter your management and governance structure with the alteration of your business structure. Finally, you must create and carry out a successful business plan to operate your LLP. All these requirements must be fulfilled carefully with the aid and advice of a legal professional like Setindiabiz.

About Setindiabiz

Setindiabiz is an organized team of experienced CA, CS, & Lawyers, duly supported by a pool of trained accountants & paralegal staff that provides quality & affordable compliance services to startups & small businesses in India. The views, statements and recommendations expressed in this article or post are only for the sole objective of providing information, and it does not constitute professional advice or recommendation of the company. Neither the author nor the company or its affiliates accepts any liability for any loss or damage arising from any information in this article or any actions taken in reliance thereon.
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