Conversion of Partnership into LLP
Conversion of Partnership into LLP
Partnership firms are at a disadvantage when compared to the newly introduced Limited Liability Partnership (LLP) as they do not provide limited liability protection for the partners, separate legal entity status, ability to take on unlimited number of parters and ease of ownership transfer. The introduction of LLP’s through the Limited Liability Partnership Act, 2008 has made LLPs the premier choice for small and medium sized businesses. Inciting tremendous interest among Partners of a existing Partnership firms to convert their firms into LLP. In this article we look at the process for conversion of partnership into LLP.
Overview
LLPs are governed by the LLP Act, 2008 and the process for conversion of partnership into LLP is covered under Second Schedule of the LLP Act. Reasons for conversion of partnership firm into LLP can be found in another article titled “Reasons for Converting your Existing Partnership Firm into a Limited Liability Partnership”.
One of the major requirement for the conversion of Partnership into LLP is that the LLP formed from the Partnership have the same Partners as the original Partnership. The LLP formed cannot have new or less Partners than the Partnership firm. Therefore, if any Partners are to be added to the LLP, the Partnership should first be converted into a LLP and then Partners must be added to the newly formed LLP. On the other hand, if Partners are to be removed, it is best to remove them prior to starting the process for conversion of Partnership into LLP.
Procedure for Conversion of Partnership into LLP
To start the conversion of Partnership into LLP, Digital Signature Certificate (DSC) and Designated Partner Identification Number (DPIN) or Director Identification Number (DIN) must first be obtained for all the Partners. The application for conversion of Partnership into LLP must then be made through Form 17 along with the following documents or information:
- Consent of Partners for conversion into LLP
- Incorporation Documents for LLP
- NOC Certificate from Tax Authorities
- Financial Statements of the Partnership Firm
- List of all creditors and their consent
- Any other document or information as requested by the authorities
Once the above documents along with the documents is submitted to the Registrar, the Registrar after verifying the documents shall issue a certificate of registration for LLP. The LLP must then inform to the concerned Registrar of Firms about the conversion of Partnership into LLP within 15 days from the date of conversion through the prescribed forms.
Transfer of Licenses, Registrations and Property
Licenses, approvals, permits or registrations issued in the name of the Partnership firm will not be transferred automatically to the LLP. Also, if there were any properties registered under the Partnership firm prior to the conversion, the LLP must approach the concerned authorities and take steps as prescribed to transfer the assets to the LLP. Therefore, it is important for the Entrepreneur to keep in mind various other aspects and clarify procedural aspects with the concerned licensing or registration authorities prior to beginning the process for conversion into LLP.
Effect after Conversion
Once the Partnership is converted into a LLP, the Partnership firm is deemed to be dissolved and the name of the partnership firm is removed from the register of Registrar of Firms. The assets, liabilities, rights, privileges, obligations of the Partnership firm is considered to be wholly transferred to the LLP and the conversion doesn’t affect any existing contracts, employment, agreement, etc.
The Partners will enjoy limited liability protection for all transactions conducted after the conversion of partnership into LLP. However, the Partners will continue to be personally liable for all business conducted as a Partnership prior to the conversion into LLP.
In addition, after the conversion to LLP, the LLP for a period of not less than 12 months from date of conversion, must include a statement that it was converted from a Partnership into a LLP in all official correspondence.
