Conversion of Partnership Firm into Limited Liability Partnership (LLP)

The shift from traditional partnerships to Limited Liability Partnerships (LLP) has gained popularity in recent years. Many small and medium-sized businesses prefer to convert a partnership firm into an LLP due to the advantages it offers, such as limited liability, unlimited partners, perpetual succession, and increased flexibility in management. The Limited Liability Partnership (LLP) Act, 2008 governs the conversion process, ensuring that businesses benefit from both the flexibility of a partnership firm and the corporate structure of a private limited company. This article provides a detailed guide on the process, benefits, and legal requirements to successfully convert a partnership firm into LLP in India.

Why Convert a Partnership Firm into LLP?

Businesses choose to convert a partnership firm into LLP due to several advantages over traditional partnerships. Here are the key reasons:

1. Limited Liability Protection

In a partnership firm, partners are personally liable for the debts of the business. If the firm incurs losses, partners’ personal assets can be used to cover liabilities. However, in an LLP, the liability of partners is limited to their capital contribution, protecting personal assets from business risks.

2. Separate Legal Entity

A Limited Liability Partnership (LLP) is a separate legal entity, unlike a partnership firm. It can own property, enter contracts, and sue or be sued in its name, providing better legal protection and business credibility.

3. Perpetual Succession

An LLP continues to exist even if one or more partners leave or pass away. In contrast, a partnership firm dissolves upon the death or insolvency of a partner.

4. No Limit on Number of Partners

A partnership firm is restricted to a maximum of 20 partners (10 for banking businesses). In contrast, an LLP can have an unlimited number of partners, making it suitable for growing businesses.

5. Easy Transfer of Ownership

Transferring ownership in an LLP is easier compared to a partnership firm. A partner’s share in an LLP can be transferred to another person, subject to LLP agreement provisions.

6. Lower Compliance Compared to a Private Limited Company

While an LLP follows some corporate regulations, the compliance requirements are less strict than a private limited company. There is no mandatory audit requirement unless the turnover exceeds Rs. 40 lakh or capital contribution exceeds Rs. 25 lakh.

Key Differences Between a Partnership Firm and LLP

Conditions for Converting a Partnership Firm to LLP

To successfully convert a partnership firm into LLP, the following conditions must be met:

1. All partners of the existing firm must be partners in the LLP – No new partners can be added during the conversion.

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

3. All partners must obtain a Digital Signature Certificate (DSC).

4. At least two partners must have a Designated Partner Identification Number (DPIN).

5. All secured creditors must provide their consent before conversion.

6. All partners must agree to the conversion and must sign the necessary documents.

7. All tax returns of the partnership firm must be filed before conversion.

Procedure to Convert Partnership Firm into LLP

The process to convert a partnership firm into LLP involves multiple steps. Below is the step-by-step guide:

Step 1: Name Approval & Digital Signature Certificate (DSC)

1. Apply for Name Approval

• Visit the MCA portal.

• Select “RUN – LLP” (Reserve Unique Name) and choose “Conversion of Firm into LLP”.

• Provide two proposed names for the LLP.

• Submit the application and pay the name reservation fee.

• If approved, the name is reserved for 90 days.

2. Obtain Digital Signature Certificate (DSC)

• All designated partners of the LLP must obtain a DSC.

• The DSC is required to sign all online forms electronically.

Step 2: File Conversion Forms with the Registrar of Companies (RoC)

1. File Form 17 (Application for Conversion)

Submit Form 17 with the following details:

• Service Request Number (SRN) of RUN-LLP form.

• Details of the partnership firm (name, address, registration details).

• Number of partners and capital contribution.

• List of secured creditors and their consent.

Attachments:

• Consent of all partners.

• Statement of assets and liabilities of the firm certified by a Chartered Accountant.

• Latest Income Tax Return Acknowledgment.

• List of secured creditors with their consent.

2. File Form FiLLiP (Form for Incorporation of LLP)

Provide details such as:

• Registered office address and email ID.

• Business activities of the LLP.

• Details of partners and their capital contribution.

Attachments:

• Proof of registered office address.

• NOC from the property owner (if rented premises).

• Identity & address proof of partners.

Both forms must be digitally signed by designated partners and certified by a Company Secretary, Chartered Accountant, or Cost Accountant.

Step 3: Issuance of LLP Registration Certificate

• Once all documents are verified, the Registrar of Companies (RoC) will issue a Certificate of Incorporation.

• The partnership firm is officially converted into an LLP.

Step 4: Draft & File LLP Agreement

• The LLP Agreement must be filed using Form LLP-3 within 30 days of incorporation.

• It includes details such as:

• Name of LLP.

• Capital contribution & profit-sharing ratios.

• Rights & duties of partners.

• Management structure.

Step 5: Intimation to Registrar of Firms

• Inform the Registrar of Firms about the conversion using Form 14 within 15 days.

• Attach:

• Certificate of LLP Incorporation.

• LLP Agreement copy.

Effects of Conversion of Partnership Firm into Limited Liability Partnership (LLP)

Once a partnership is converted into an LLP, the following changes occur:

1. The LLP takes over all assets, liabilities, and obligations of the firm.

2. The partnership firm is dissolved and removed from records.

3. All legal contracts and proceedings of the firm continue with the LLP.

4. Partners remain liable for any firm liabilities before conversion.

Post-Conversion Compliance

After converting into an LLP, businesses must ensure the following:

1. Apply for a fresh PAN and TAN for the LLP.

2. Update bank accounts, contracts, and business records.

3. Reapply for necessary licenses and approvals.

4. File annual compliance forms – LLP Form 8 & LLP Form 11.

Conclusion

The conversion of a partnership firm into a Limited Liability Partnership (LLP) is a beneficial move for businesses seeking limited liability, better credibility, and flexible ownership. By following the legal procedure, businesses can successfully convert their partnership into an LLP and enjoy a more structured business model. For businesses looking to expand, attract investors, and safeguard personal assets, LLP registration is a smart choice. Entrepreneurs must carefully plan the conversion process, obtain approvals, and meet compliance requirements to ensure a smooth transition.

If you need any help in the conversion of a Partnership Firm into an LLP, then you can book a consultation with our expert through mail info@ccoffice.in or Call/Whatsapp us at +91 9988424211.

FAQs

Q1. What is the process to convert a partnership firm into an LLP?

Ans. To convert a partnership firm into LLP, follow these steps:

1. Reserve a name for the LLP through the RUN-LLP portal on the MCA website.

2. Obtain Digital Signature Certificates (DSC) for designated partners.

3. File Form 17 (Application for Conversion of Firm into LLP) with required documents.

4. Submit Form FiLLiP for LLP incorporation.

5. Receive the LLP Incorporation Certificate from the Registrar of Companies (RoC).

6. File LLP Agreement (Form LLP-3) within 30 days of incorporation.

7. Notify the Registrar of Firms about the conversion using Form 14.

Q2. What are the benefits of converting a partnership into an LLP?

Ans. Converting a partnership firm into LLP offers several advantages, including:

• Limited liability protection for partners.

• Separate legal entity status, allowing LLPs to own property and enter contracts.

• Perpetual succession, meaning the LLP remains unaffected by partner changes.

• No limit on the number of partners, unlike partnerships restricted to 20 partners.

• Easier transfer of ownership and reduced compliance compared to private limited companies.

Q3. Are all partners required to be part of the LLP after conversion?

Ans. Yes, as per the Limited Liability Partnership Act, 2008, all existing partners of the partnership firm must become partners in the LLP during the conversion process. However, partners can exit the LLP after the conversion is completed.

Q4. Do we need to obtain a new PAN and TAN after converting to LLP?

Ans. Yes, since an LLP is a separate legal entity, it must obtain a new PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number) after conversion. The LLP must also update bank accounts and contracts to reflect the new business structure.

Q5. Will all assets and liabilities of the partnership firm transfer to the LLP?

Ans. Yes, upon conversion, all assets, liabilities, rights, obligations, and contracts of the partnership firm are automatically transferred to the LLP. However, licenses and permits do not transfer automatically and must be reapplied for under the LLP’s name.

Q6. What is the compliance requirement for an LLP after conversion?

Ans. After converting into an LLP, businesses must comply with:

Filing of LLP Annual Returns (Form LLP-11).

Filing of Statement of Accounts and Solvency (Form LLP-8).

Conducting statutory meetings as per LLP agreement.

Tax filings and GST compliance as applicable.

Q7. Can a partnership firm with outstanding debts convert into an LLP?

Ans. Yes, but all secured creditors must provide consent for the conversion. Additionally, partners remain liable for any liabilities incurred before conversion. If a partner settles an obligation, they can be reimbursed by the LLP.