Limited Liability Partnership (LLP) is a relatively new concept in India, introduced through the Limited Liability Partnership Act, 2008. It is a hybrid structure that combines the benefits of a company and partnership firm. LLP offers limited liability to its partners, flexible management structure, and easy maintenance of statutory compliances. Therefore, many partnership firms are converting themselves into LLPs to avail of these benefits. In this article, we will take a closer look at the conversion of a firm into LLP and how it works.
What is the Conversion of a Firm into LLP?
Conversion of a firm into LLP is a process of re-registering a partnership firm into an LLP. Under the LLP Act, 2008, the partners of the firm become partners of the LLP. The conversion process is entirely voluntary, and the partners can decide to convert the firm into an LLP if they wish to.
Benefits of Conversion of a Firm into LLP
There are several benefits of converting a firm into an LLP:
- Limited Liability: One of the primary benefits of an LLP is limited liability. The partners of an LLP are not personally liable for the debts and obligations of the LLP. This means that the personal assets of the partners are protected in case of any losses or liabilities incurred by the LLP.
- Easy Management Structure: The management structure of an LLP is simple and flexible. There is no requirement for a board of directors or shareholders, and the partners can manage the affairs of the LLP directly.
- Easy Maintenance of Statutory Compliances: An LLP has fewer statutory compliances compared to a company. Therefore, it is easier to maintain statutory compliances and file annual returns with the Registrar of Companies.
- Tax Benefits: An LLP is taxed as a partnership firm. Therefore, it enjoys the tax benefits of a partnership firm, such as tax deductions, lower tax rates, etc.
- Easy Transfer of Ownership: In an LLP, ownership can be easily transferred from one partner to another. This makes it easier to bring in new partners or exit existing partners.
Procedure for Conversion of a Firm into LLP
The procedure for the conversion of a firm into an LLP involves the following steps:
- Obtain DPIN and DSC: All designated partners of the proposed LLP must obtain a Designated Partner Identification Number (DPIN) and Digital Signature Certificate (DSC) from the Ministry of Corporate Affairs (MCA).
- Apply for Name Approval: The next step is to apply for name approval of the LLP. The partners can apply for a maximum of six names, and the name should not be identical or similar to any existing company or LLP.
- File Form-17 and Form-2: Once the name is approved, the partners need to file Form-17 and Form-2 with the Registrar of Companies. Form-17 contains details of the proposed LLP, and Form-2 contains the consent of the partners for the conversion.
- Obtain Certificate of Registration: If the Registrar of Companies is satisfied with the application, they will issue a Certificate of Registration, which means that the conversion of the firm into an LLP is complete.
- Update Statutory Records: After obtaining the Certificate of Registration, the partners need to update the statutory records of the LLP, such as the LLP Agreement, PAN, TAN, bank account, etc.
conversion of firm into LLP is a simple and straightforward process, provided all the necessary documents and compliances are in order. It offers many benefits, such as limited liability, easy management structure, easy maintenance of statutory compliances, tax benefits, and easy transfer of ownership. However, it is essential to weigh the pros and cons and make an informed decision before converting a firm into an LLP.