Understanding on the conversion of Partnership Firm into LLP
The move from traditional partnerships to Liability Partnerships (LLPs) has increased dramatically. The explanation for this is that LLPs offer more versatility, limitless partners, and the like. But the main driving force behind the change is the fact that LLPs offer a big benefit in terms of limited liability. As far as LLPs are concerned, the burden on the personal assets of the partner is put to rest as they are combinations of both a partnership and a private limited company. Small and medium-sized companies find this form of organizational structure very well suited to their needs.
The benefits of the structure of the Limited Liability Partnership (LLP) are greater than those of the conventional partnership. Limited liability, permanent succession, and limitless partners are crucial incentives for a partnership to turn itself into an LLP.
Reason for Conversion of Partnership Firm into LLP
Two members are the minimum requirement to form an LLP, whereas no limitations are put when it comes to the maximum number of partners who can participate.
There are certain people like individuals, limited liability partnerships, companies, Foreign Limited Liability Partnerships, and foreign companies who can participate.
Basic Requirements for Converting a Firm to LLP
– All partners of the company shall be partners of the LLP, which ensures that there shall be no new partners or that the current partners cannot cease to be partners when making an application.
– The LLP must have the same members as the partnership firm. Any partner wishing to be excluded from the LLP will be removed after the conversion has been completed.
– DIN/DPIN must be collected from all Designated Partners.
– Both partners must hold a valid DSC and at least 2 partners must have a DPIN before making such an application.
– The partnership to be converted must be registered in compliance with the Partnership Act, 1932.
– The approval of both partners must be sought.
The partnership can be converted into LLP. This is done due to the following reasons-
Limited Liability for Partners: This accounts to be one of the most important drawbacks. This is why most people are scared to participate in it. On the other hand in the LLP it is seen the partners to be responsible or liable for their contribution to the firm, They are not awarded individually.
Perpetual Existence: There stands to be a perpetual existence of the partners. The existence of the partner is not at all dependent on other partners. There occurs a change in the partners who participate in the LLP. Therefore the conversion of the partnership is essential which helps to maintain individualism.
Unlimited partners: This is another major cause of conversion. The minimum number is always fixed the participation can exceed any level.
Better credit access: Easier bank loans are provided to the partners. They are given their assets are credits equally and they get their awards for their contribution. They also have a much efficient system of management which is essential in the Limited Liability Partnership. Therefore is always preferred.
Potential Growth: The amalgamation and merger of the business greatly help to unlock many business strategies. The LLP, in turn, can also easily merge with other LLP which helps in a notable amount of growth in the business profits.
Step By Step Procedure for Conversion of a Firm to LLP
Step I – Apply New Name Approval for LLP & Digital Signature Certificates
Step II – Apply Filing of the Forms with the RoC – Form 17 (Application and Statement for conversion of a firm into LLP)
The below Accompanied by provided following attachments along with form 17
- Details of all the secured creditors along with their consent.
- Copy of BS of the firm certified by a CA in practice.
- Latest ITR Return copy.
- Affirmative Statement of Consent of Partners of the firm.
- Any other required information or documents.
Step III – Apply Form FiLLiP (Form for incorporation of LLP)
Accompanied by the provided following are:
- Copy details of any LLP/Company where a designated partner is also a director/partner.
- Copy of address & Proof of identity of the applicants.
- In case 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.
- Copy Proof of address of the registered office of the LLP.
- Copy of Subscriber’s consent.
- Copy of NOC from the property’s owner and copy of utility bills (latest by 2 months).
- Copy Approval of any regulatory authority, if required.
Both forms must be e-signed by the proposed appointed partners and accredited by the ICWA, the CS or the CA or either of them must be in full-time practice. The fee to be paid varies with respect to the value of the capital contribution.
Step IV – ROC will Issue of Registration Certificate of the LLP
Step IV – Apply for Limited Liability Partnership Agreement
The Limited Liability Partnership Agreement has to be submitted in Form LLP – 3 within thirty days of formation /Conversation of the LLP.
Step V – inform the Registrar of Firms in Form – 14
This form-14 has to be attached accompanied by:
– scan copy of the LLP Incorporation Certificate.
– scan copy of the formation documents submitted in Form FiLLiP.
Impact of the LLP Registration process
- The LLP shall come into existence by the name specified in the certificate of registration.
- All properties, liabilities, rights, and privileges which have been given to the firm shall be invested in the LLP.
- The firm shall be dissolved and if it has been licensed under the Indian Partnership Act, shall be excluded from the records kept.
- All cases which have been brought against the company can be brought against LLP.
- Any order or decision, either for or against the company, maybe implemented against the LLP.
- All current contracts and agreements under which the company was a party shall continue to be in effect with the LLP as the party to the contract.
- Any current appointment of the firm or authority conferred on the firm shall be as if it had been conferred on the LLP.
Responsibility of partners before conversion: Each partner would be collectively and severally responsible for all the liabilities and obligations of the company that were incurred prior to such conversion. If a partner dissolves the duty, it shall be paid by the LLP.
Notice of conversion
The Limited Liability Partnership must provide that period of 12 months starting on a date not later than 14 days after registration:
– a declaration that it has been converted from a corporation to a Limited Liability Partnership as of the date of registration listed and
– Name and registration number(s) of the corporation from which it has been converted in each official communication of the Limited Liability Partnership.
In the event that the Limited Liability Partnership contravenes the above clause, it shall be disciplined with a minimum fine of Rs 10,000 and a maximum fine of Rs 1,000,000. In the event of continuous default, the minimum fine shall be Rs 50 per day and the maximum amount shall be Rs 500 per day.
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