Conversion of Partnership into LLP

Due to many benefits of LLP as compared to Partnership Firm many wishes to opt for conversion of their Partnership Firm to LLP such as Limited Liability, separate Legal Entity and ease of transfer of Business, tax savings and audit requirements flexibility.

LLP incorporated by conversion 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 the incorporation of LLP.

Eligibility for conversion of Partnership Firm to LLP

An Unregistered Firm cannot be converted into LLP.

The partnership firm must be registered under Indian Partnership Act, 1932.

If the firm is not registered under Indian Partnership Act, 1932 than the name of the Statute under which it is registered has to be mentioned at the time of conversion.

Benefits of Conversion

Corporate Structure
After Conversion the Partnership firm enjoys the benefit of Registered Corporate structure.

Limited Liability
The liability of partners is limited as compared to partnership firm where the liability of partners is unlimited.

Easier to Raise Funds
It is easier to raise funds in LLP as compared to partnership Firm.

More credible
LLP is more credible as compared to partnership Firm.

Pre-requisites of Conversion to LLP

Up to date filing of Income tax returns.

The partners shall receive consideration only by way of allotment of shares in LLP.

Consent of all the unsecured creditors for the proposed conversion in LLP.

Minimum 2 Partners.

At least 1 of the designated partners shall be an Indian Resident.

DPIN for all the Partners.

DSC for all the Partners.

There has to be some sort of contribution from each partner.

Conversion Process

Step 1 – Preparation of Digital Signature
If the partners decided to convert the Partnership Firm into an LLP, the Digital Signature Certificate (DSC) is a mandatory requirement for all the Partners.

Step 2 –DIN or DPIN
The Partners in a LLP or the Directors in a Private Limited Company require a DIN / DPIN.

Step 3 – Name Approval
The Reservation of the name of the LLP must be obtained before filing the forms for conversion of the Partnership Firm into LLP.

Step 4 – Filing LLP Form 17
Application and a Statement of the Conversion of Partnership Firm into LLP (Limited Liability Partnership) i.e., Form 17 should be filed along with the incorporation application. The subscriber’s sheet should also be filed while converting a partnership firm into an LLP.

Step 5 – Filing for Incorporation & Conversion of Partnership into LLP
For the Conversion of a Partnership Firm into LLP, LLP Form 2 and LLP Form 3 must also be filed. LLP Form 2 contains the incorporation document and the subscriber’s statement along with additional documents. The LLP Form 3 contains the initial Limited Liability Partnership Agreement.

Step -6 Successful Conversion of Partnership Firm into LLP
On successful conversion of Partnership firm into LLP, the Registrar would then issue a Certificate of Incorporated of LLP.

Documents Required

Consent of partners of the firm.

A Statement of the asset and liabilities of the firm which is duly certified as a true copy by a practicing Chartered Accountant.

A Copy of the Acknowledgment of the Latest Income Tax Return (Mandatory).

Approval from any Regulatory Body / Authority (Mandatory)

List of all the secured creditors along with their consent to the conversion.

A Clearance or No Objection Certificate (NOC) from the Tax Authorities.

Proof of address of the registered office to the LLP.

The Subscriber’s sheet with consent.

The Details of LLP(s) and/or company(s) in which the partner/designated partner is a director/partner (if any).

LLP Agreement.

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Frequently Asked Questions

Can an existing Partnership Firm ne converted to LLP?

Yes, an existing partnership firm can be converted into LLP by complying with the Provisions of clause 58 and Schedule II of the LLP Act. Form 17 needs to be filed along with Form 2 for such conversion and incorporation of LLP.

In case respective has been filed for conversion of Partnership Firm to LLP, can conversion application be rejected? Is there any provision to file appeal against such rejection?

Yes, conversion application (Form 17 or 18) can be rejected by the registrar, if not found appropriate along with eForm 2.

The applicant has the option to go for appeal against the application rejected within 90 days and inform the registrar about the action undertaken. After the appeal is decided, the registrar can mark the status of eForm as ‘Sent for re-application’ or ‘Rejection confirmed’.

Is it required to file Form 14 for conversion of firm into LLP?

As per notification dated 15th October, 2015 issued by Ministry, Form-14 is required to be filed in physical form with Registrar of Firms, after approval of Form 17 by Registrar of LLP.

As per notification dated 15th October, 2015 issued by Ministry, Form-14 is required to be filed in physical form with Registrar of Firms, after approval of Form 17 by Registrar of LLP.

In case the eForm is marked as ‘Sent for re-application’, the applicant is required to file fresh respective Form along with Form 2 within 60 days, failing which the Form will be marked as ‘Rejection confirmed’ by the system.

In case of re-application, the fee is not required to be paid again while re-applying for conversion.

what is the treatment of stamp duty issues, both in terms of original incorporation and conversion from other business structures? Would there be any stamp duty exemption in case of conversion?

Since Stamp Duty is the subject reserved for the States, the LLP Act does not contain any provision for treatment of stamp duty issues. The stamp duty payable will depend upon the relevant Stamp Act prescribed by the State Government/Union Territory.