After introduction of Limited Liability Partnership (LLP) Act in 2008 many Partnership Firms have started converting their Partnership Firms to Limited Liability Partnership (LLP). The reasons of conversion are obvious, ability to take unlimited number of Partners, Limited Liability, separate legal entity, ease of ownership transfer etc. Because of advantages of Limited Liability Partnership (LLP) over Partnership Firm, LLP has become very popular amongst small and medium sized businesses.
Second schedule of Limited Liability Partnership (LLP) Act deals with conversion of Partnership Firm to Limited Liability Partnership. Before deciding about conversion of Partnership Firm to LLP, few things should be kept in mind.
Preconditions for conversion of Partnership Firm to LLP
- For conversion of Partnership Firm to LLP, the Partnership Firm which wants to convert itself to LLP must be registered under Indian Partnership Act, 1932. Unregistered Partnership Firm cannot be converted to LLP.
- Consent of all the partners for conversion to LLP must be taken.
- LLP incorporated by conversion of Partnership Firm to LLP must have same partners as they were in the Partnership Firm. Therefore it is suggested that the Partnership Firm should retire all the Partners who do not wish to be a part of LLP and if new partners are to be added, they should be added after incorporation of LLP.
- Before starting the procedure for conversion of Partnership Firm into LLP, the Partners of Partnership Firm should be aware that all the licenses, approvals, registrations and permissions issued in the name of Partnership Firm under law cannot be automatically transferred to LLP. The LLP should after its incorporation apply for all the licenses, permissions, registrations or approvals again.
Procedure to convert Partnership Firm to LLP
For conversion of Partnership Firm to Limited Liability Partnership (LLP) all the partners must have Digital Signature Certificate (DSC) and Directors Identification Number (DIN) (DIN and DPIN have been integrated by MCA vide circular Dt 8-7-2011). Once Digital Signature Certificate and DIN are obtained, process for conversion of Partnership Firm to LLP can be started.
First requirement for conversion of Partnership Firm to LLP is to get the name approval. Click here for information on how to name a Company or LLP. For conversion of Partnership Firm to LLP, Form No. 17 with other relevant forms and documents should be filed with the Registrar of Companies. Some of the important documents are as noted below:
- Consent of all the partners for conversion;
- NOC from Tax Authorities;
- NOC from unsecured creditors and creditors list;
- Financial statements certified as true and correct by Chartered Accountant;
- All documents required to incorporate LLP;
- Any other documents as may be required by the ROC.
On submission of required forms and documents and making payment of prescribed fees, the ROC will issue Certificate for Incorporation in the name of LLP. Within 15 days of getting Certificate of Incorporation, LLP should inform the Registrar of Firms by filing prescribed form.
Effects of conversion of Partnership Firm to LLP
On conversion of Partnership Firm into LLP, the Partnership Firm is deemed to be dissolved. All the assets, liabilities, rights, privileges etc of Partnership Firm are deemed to be transferred to the LLP. All the contract, employment contract, agreements etc in the name of Partnership Firm are deemed to be that of LLP and there is no affect on the same.
The Partners of LLP starts enjoying the Limited Liability protection. However, the liability of Partners shall continue to be unlimited for all the acts, deeds or business conducted prior to the date of conversion of LLP.
The LLP shall include a statement that it was converted from Partnership Firm for a period of not less than 12 months from the date of conversion.
For more information on conversion of Partnership Firm to LLP, click on the related articles as noted below
- Conversion of Partnership to LLP
- Comparison – LLP v/s Partnership Firm
- Reasons to convert Partnership Firm into LLP