In India, there are primarily two kinds of partnership firms directly or indirectly. The first is the one which has been established under the Partnership Act of 1932 and the second is the one which has been registered under the LLP Act of 2008. Both are very different from each other. Regular partnership firm registration is the traditional way of doing business, on the other hand LLPs are the modern version of doing business in the partnership. Limited Liability Partnership Firms are having all the benefits of a corporate body. Also they need to be registered with the Ministry of Corporate Affairs website. If you have registered your business in partnership and now you want it to convert into LLP, then you do not need to worry, because conversion of partnership into LLP is possible. The current blog will discuss everything with respect to the conversion of partnership into LLP. If you are the one who wants to convert your partnership firm into LLP, this blog will be perfect for your reference.
What is a Partnership Firm?
When two or more individuals associate together to conduct business of any type with the aid of a mutual agreement, then this type of association is known as a partnership firm. These businesses operate in accordance with the cooperation agreement. The partnership deed is the most crucial document needed to register a partnership firm out of all the others. While registering a partnership firm is not required, as professionals, we always advise doing so so that, should a dispute occur between the partners, it will be simple to establish partnership in a court of law. Since unregistered documents are hard to establish, one must register their partnership firm for security and greater clarity.
What is a Limited Liability Partnership Firm?
A Limited Liability Partnership (LLP) is a contemporary form of business organization introduced by the Limited Liability Partnership Act of 2008. It involves the collaboration of two or more partners and is a modern interpretation of traditional partnership firms. LLPs seamlessly combine aspects of businesses and partnership structures. The Ministry of Corporate Affairs facilitates the online LLP formation process. Notably, LLPs offer partners separate legal liabilities, releasing them from certain obligations associated with the firm’s liabilities. With at least two partners, LLPs enjoy various benefits as a business entity, possess independent legal personalities, have limited liability for members, and exhibit perpetual succession. Once established, LLPs follow a specific process for dissolution, making them a distinctive and enduring business model.
Key Difference Between LLP and Partnership Firm
Some of the key difference between LLP and Partnership firms which you must know before the conversion of partnership into LLP are given below in the table:
| Limited Liability Partnership Firm | Partnership Firm |
| There operation and management is governed by the law that is known as LLP Act of 2008 | There operation and management is governed by the law that is known as Partnership Act of 1932 |
| They are like corporate bodies | They are not corporate bodies |
| They needs to maintain their books of accounts | Maintenance of books of accounts is not mandatory |
| There is no limitation on its membership | It has limitation on its members |
| It has many compliances which needs to be fulfilled in order to save the LLP from fines and penalties | There is no such compliances which result into fines and penalties |
| Registration of such kind of entities is mandatory | Registration of such kind of entities are not compulsory |
| They are having perpetual succession | They are not having perpetual succession |
| They are having separate legal liabilities | They are not having separate legal liabilities |
Why to Choose LLP over Partnership Firm?
There are many reasons due to which conversion of partnership into LLP has been suggested. Some of the key points due to which people convert their partnership firm into LLP are mentioned below:
- Limited liability partnership firms are corporate bodies and they have all the advantages of the corporate bodies
- LLPs enjoys the perpetual succession whereas partnership firms dissolves as per their partners
- Operation and management of the LLPs are smoother than the partnership firms.
- LLPs are responsible for their liabilities whereas in partnership firms partners are liable for the liabilities of the partnership firms.
- LLPs are having various tax exemptions
- LLPs attracts more consumers than the partnership firms
- LLPs are reliable, credible and transparent
Condition for the Conversion of Partnership into LLP
Some of the key conditions of converting a partnership firm into a LLP are mentioned below:
- Only a registered partnership firm under the Indian Partnership Act, 1932, can be converted into an LLP.
- The partnership firm should be solvent, meaning its assets should be sufficient to cover its liabilities.
- Unanimous consent of all partners is necessary for the conversion.
- Partners must agree on the terms and conditions outlined in the proposed LLP agreement.
- Partners need to declare that the firm is solvent and is capable of meeting its obligations.
- The partnership firm’s whole asset and liability portfolio becomes the LLP’s asset and liability portfolio.
- Obtain NOC from all existing creditors of the partnership firm.
- If there are secured creditors, their consent is required for the conversion.
- After the conversion, close the existing bank account of the partnership firm and open a new bank account in the name of the LLP.
What is the Procedure for the Conversion of Partnership into LLP
Given below is the step-by-step process for the conversion of partnership into LLP:
Prepare Application
In order to convert a partnership firm into LLP, one needs to follow the proper procedure given under section 55, schedule 2 of the LLP Act of 2008. The very first thing towards converting a partnership firm into LLP is to make an application for the same. Application and statement needs to be drafted in the Form 17 to the Ministry of Corporate Affairs (MCA). After completing the form, check it twice and submit it before the registrar of the companies.
Registrar of Companies Approval
Once the application has been submitted to the registrar of the companies in order to convert a partnership firm into LLP, it will be reviewed by the registrar of the companies. If the registrar of the companies got satisfied with the application, it will grant approval for conversion of partnership into LLP. After that one can move forward with the process of conversion of partnership firm into a Limited Liability Partnership Firm.
Newspaper Advertisement
After the firm gets the permission or approval of the registrar for the companies in order to convert a partnership firm into a LLP Firm,one needs to move forward with the next step that is advertisement into the newspaper. Publish an advertisement about the conversion in one English and one vernacular newspaper in the district of the firm’s registered office.
Certificate of Incorporation
Once the above steps will be completed, the certificate of incorporation has been issued by the ROC, which is also known as registrar of companies, for your Limited Liability Partnership Firm. The day you get the certificate of incorporation officially it will be presumed that your partnership firm has been converted into a LLP.
Post Conversion Formalities
There are some formalities which one needs to complete once the conversion of partnership into LLP is done. These formalities includes the following:
- File the LLP agreement using Form 3 within 30 days of incorporation.
- Close the existing partnership firm’s bank account.
- Open a new bank account in the name of the LLP.
Conclusion
Conversion of partnership into LLP in India involves a systematic process governed by the Limited Liability Partnership Act of 2008. The key distinction between the traditional partnership and LLP lies in the legal structure, management, and liability aspects. Choosing LLP over a partnership firm brings advantages such as smoother management, tax exemptions, and enhanced credibility. To initiate the conversion of partnership into LLP, the partnership firm must be registered under the Indian Partnership Act of 1932, be solvent, and obtain unanimous consent from all partners.
The conversion of partnership into LLP process includes preparing an application, obtaining Registrar of Companies approval, publishing advertisements, and receiving the Certificate of Incorporation. After conversion, necessary formalities like filing the LLP agreement, closing the existing bank account, and opening a new LLP account must be completed. This conversion provides businesses with a contemporary and enduring model for their operations.
