The concept of LLP is introduced under the Limited Liability Partnership Act, 2008. It has become the premier choice of small and medium-sized enterprises.
It is governed by the LLP Act, 2008 and the process for conversion of partnership firm into LLP is covered under Second Schedule of the LLP Act.
The major requirement for the conversion of Partnership into LLP is that the LLP formed from the conversion of the partnership have the same partners as the original partnership firm. Furthermore, there are tax benefits, no audit requirements below a certain capital, no cap with regard to a number of partners or capital contribution requirements.
Limited Liability Partnership (LLP) can prove to be a much better business vehicle in comparison to a regular partnership. Partnership firms are at a disadvantage in comparison to Limited Liability Partnership (LLP) as partnership firms do not provide limited liability protection to partners. LLP is considered a separate legal entity. LLP has the ability to appoint an unlimited number of partners and there is ease of ownership transfer.
The LLP formed cannot have new or fewer Partners than the Partnership firm. Therefore, if it is required to add partners then the partnership should be first converted into an LLP and then partners must be added to the newly formed LLP.
In case it is required to remove partners then it is best to remove them prior to starting the process of conversion.
For the purpose of converting partnership into LLP firstly, it is required to obtain Digital Signature Certificate (DSC) and Designated Partner Identification Number (DPIN) for all the Partners. After this, an application will be made for the conversion of Partnership into LLP through Form 17 along with the required documents.
After the submission of all the necessary documents, the Registrar after verifying the documents shall issue a certificate of registration for LLP. After this, LLP must 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.
After the conversion of a partnership into LLP, partnership firm is deemed to be dissolved and the name of the partnership firm shall be removed from the register of Registrar of Firms. The assets, liabilities, rights, privileges, obligations of the Partnership firm are considered to be wholly transferred to the LLP and the conversion doesn’t affect any existing contracts, employment, agreement, etc.
After the conversion, the Partners will enjoy limited liability protection for all transactions conducted. However, the Partners will be personally liable for all business conducted prior to the conversion into LLP.
Form the date of conversion, within a period of 12 months must include a statement that it was converted from a partnership into an LLP in all official correspondence.
In case of LLP, there is a requirement of filing an annual return only if it has a turnover of more than Rs.40 lakh or capital contribution of over Rs.25 lakh.