Converting a partnership firm into a Limited Liability Partnership (LLP) provides several benefits such as:
- Limited Liability Protection: LLP protects personal assets from business risks, unlike partnership firm where partners have unlimited liability.
- Separate Legal Entity: An LLP operates independently, ensuring continuity even if partners change.
- Perpetual Succession: LLPs offer more stability and continuity in business operations.
- Attracting Investment: LLPs can raise funds from investors while retaining flexibility.
- No Limit on Number of Partners: Unlike partnership firms, LLPs do not have a cap on the number of partners.
It is not mandatory for the firm to be registered with the Registrar of firms prior to conversion. Further the firm is converted to LLP on ‘as it is’ basis. Any changes required in the partners, their sharing ratio, name change or change in office in the firm can be done after the conversion of the form into LLP is completed and not while the conversion process is being undertaken.
Here’s a step-by-step process to guide you through the conversion from a partnership firm to an LLP.
Step 1: Obtain Digital Signature Certificate (DSC) for all partners. Its mandatory to obtain DSC for all partners as consent form required from all partners is to be signed digitally.
Step 2: Name Approval for LLP by RUN-LLP (Reserve Unique Name – LLP) to check and reserve the name for the proposed LLP. Attach copy of partners resolution for conversion of the firm to LLP. Generally the same name as the partnership firm is allowed for LLP with the mandatory addition of LLP after the name.
Step 3: Once the name is approved, file Form FiLLiP (Incorporation of LLP) with the following required documents:
- Address proof of LLP
- Partner details and identity/address proofs
- Subscriber sheet
- Consent of partners
Step 4: File Form 17 (Application for Conversion of Firm into LLP) along with required documents:
- Statement of partners consenting to conversion
- Statement of assets and liabilities dated not later than 15 days from the date of filing Form 17
- List of secured creditors (if any)
- Copy of the latest Income Tax Return (ITR)
- Partnership deed of the firm
Step 5: Form 9 (Consent to act as Designated Partner) will be auto-generated.
Step 6: Once MCA verifies all documents, it issues a Certificate of Incorporation, marking the successful conversion of the firm into an LLP.
Step 7: Drafting and Executing LLP Agreement and this agreement must be executed on stamp paper of appropriate value and Submission of the same in Form 3 (Details of LLP Agreement) within 30 days of incorporation. The objects of the LLP should mention that this LLP shall take over the business of the existing partnership firm in terms of section 55, 58 of LLP Act 2008 and Rule 32(1) of the LLP Rules.
Step 8: The LLP must inform the Registrar of Firms in form 14 about its conversion to LLP within 15 days of receiving the COI in case the firm is registered.
Step 9: Update PAN, TAN, and Other Registrations
- Apply for a change in name in PAN and update GST, bank accounts, and other statutory registrations in the name of the LLP. The PAN Number remains the same.
TAXABILITY: PARTNERSHIP FIRMS VS. LLPS
Both Partnership Firms and LLPs are taxed at a rate of 30% on total income with a surcharge of 10% if income exceeds ₹1 crore, along with a 4% health and education cess. Taxes are paid at the entity level, and profits are not taxed in the hands of the partners. However, there are key differences in their taxation frameworks:
- Loss Carry-Forward: LLPs can carry forward losses even if partners change, unlike partnership firms where loss carry-forward is restricted when there is a significant change in partners.
- Presumptive Taxation: LLPs are not subject to presumptive taxation under Section 44AD, whereas partnership firms can opt for presumptive taxation and declare a deemed profit of 8% or 6% of turnover.
- Audit Requirement: LLPs must undergo an audit only if their turnover exceeds ₹40 lakh or capital contribution exceeds ₹25 lakh, whereas partnership firms must undergo an audit if their turnover exceeds ₹1 crore (or ₹10 crore in specific cases).
Akansha Rathi and Associates (ARACS), Company Secretary Firm in Navi Mumbai is engaged into compliance related services. We have a team of experts who not only possess required skills and experience but also have worked in complex business environment and were engaged in providing complex solutions in terms of providing related Compliance services to our clients.