Conversion of Partnership Firm into LLP

Conversion of Partnership Firm into LLP

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Conversion of Partnership Firm into LLP

The Limited Liability Partnership Act of 2008 introduced Limited Liability Partnerships (LLP) in India to provide flexibility for small enterprises, promote the service sector and bring together business synergies. The basic premise behind the introduction of Limited Liability Partnership (LLP) is to provide a form of business organization that is simple to maintain while at the same time providing limited liability to the owners. Taking into consideration the various benefits surrounding the LLP structure, it is certainly worth converting your existing partnership firm into a Limited Liability Partnership. Here are some of the major reasons on why you should consider conversion of Partnership firm into LLP. 
Reasons to Convert Partnership Firm into LLP
Reasons to Convert Partnership Firm into LLP

Limited Liability for Partners

One of the main drawback with respect to a Partnership firm is that the partners in a partnership are personally liable to the creditors. Therefore, many entrepreneurs hesitate to become partner of a partnership firm and prefer a Private Limited Company. However, in a Limited Liability Partnership, the partners are liable only to the extent of their contributions to the firm and thereby are not personally liable to outside creditors. Hence, Limited Liability for the Partners is a major reason for conversion of your existing partnership firm into a Limited Liability Partnership.

Perpetual Existence

The existence of a partnership firm is limited and can be dissolved on the death of a partner or all partners but one becoming insolvent or a partner becoming insane in the absence of any contract to the contrary. Limited Liability Partnerships on the other hand have perpetual existence and is a separate juristic person whose existence does not depend on the partners. The partners of a LLP may keep changing from time to time and it will not affect the LLP’s continuity.  Therefore, converting your existing partnership firm into a LLP can ensure continued existence for your business separate from that of the partners.

Unlimited Partners

In a partnership firm the minimum number of partners must be two, while the maximum number can be 10 in case of banking business and 20 in all other types of business.  However, in the case of a Limited Liability Partnership, there is no limit regarding the maximum number of partners. Also, a Limited Liability Partnership requires a minimum of two partners to form a LLP; but only in the case of number of partners falling below two for six months, the remaining partner in the continuing LLP becomes personally liable.

Better Access to Credit

Typically banks and investors provider easier bank loans for Limited Liability Partnerships because the LLP is a separate corporate body and has clear demarcation of assets and liabilities from that of the partners. Further, Limited Liability Partnerships have better Governance and professional management due to the mandatory audits required for Limited Liability Partnerships (LLPs require a mandatory audit if its turnover exceeds, in any financial year, Rs.40 lakhs or its contribution exceeds Rs.25 lakhs.) which is preferred by banks and investors.

Potential for Growth

In today’s business environment, mergers and amalgamation are commonplace with many businesses merging or amalgamating with other businesses to unlock business synergies. Partnership firms cannot be merger or amalgamated with other partnership firm; whereas, LLP can merge or amalgamate with other LLPs in order to continually grow and share synergies with other business. Therefore, the ability of LLPs to undergo merger or amalgamation is another reasons for converting your Partnership firm into an LLP.

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Comments (3)

Riyaz Ahmad

Sep 06, 2014 at 9:45 PM

sir pls conta me

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Unni Nair

Apr 14, 2015 at 4:25 PM

Presently a local Bangalore based prop co with over 2 crores in turn over and 15 lakhs profit p.a planning to expand pan India. Been in business in India for 15 years and altogether total experience in our line of business for over 25 years in 11 countries all in the same Industry. We are into Facility Services and Housekeeping and work with Companies like Microsoft/ Oracle/ Accenture/ ITC/ Yahoo/ TI/ Samsung/ Novell/ TCS/ Cap Gemini etc atc. Personally I have a degree in Industrial Cleaning from UK and worked in Europe/Far East and Middle East. WE need both Working capital and Co structure to expand.

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