How to Convert a Partnership Firm into an LLP in India?

A Limited Liability Partnership (LLP) is a great alternative to a traditional partnership firm, offering limited liability to partners, better credibility, and ease of compliance. Many businesses in India are now opting to convert their partnership firms into LLPs to enjoy these benefits while maintaining a flexible business structure.

 

If you run a partnership firm and are looking for partnership to LLP conversion, this guide will take you through the step-by-step process, requirements, and key benefits of conversion.

Why Convert a Partnership Firm into an LLP?

Before we dive into the process, let’s understand why businesses prefer LLPs over traditional partnerships:

• Limited Liability: Unlike a partnership firm, where partners are personally liable for debts, an LLP protects personal assets.

• Separate Legal Identity: An LLP is a distinct legal entity from its partners, so it can enter into contracts, own property, and can also sue or be sued in its own name.

• Less Compliance Burden: In comparison to a private limited company, LLPs have fewer regulatory and compliance requirements.

• No Minimum Capital Requirement: LLPs don't have any minimum capital contribution requirement at the time of registration.

• Tax Benefits: LLPs enjoy better tax efficiency since they are not subject to dividend distribution tax (DDT) like companies.

Now that we understand the advantages, let’s look at the process of converting a partnership firm into an LLP.

Step-by-Step Process to Convert a Partnership Firm into an LLP

Step 1: Obtain Digital Signature Certificate (DSC)

Since LLP incorporation is a digital process, the designated partners must first obtain Digital Signature Certificates (DSC). These are required to file e-forms with the Ministry of Corporate Affairs (MCA). 

How to get DSC?

• Apply for DSC from a certified authority by submitting Identity and Address Proof.

• Class 2 or Class 3 DSC is required for LLP registration.

Step 2: Apply for Director Identification Number (DIN)

Partners who will become designated partners in the LLP must obtain a Director Identification Number (DIN) or Designated Partner Identification Number (DPIN). 

Steps to get DIN: 

• File Form DIR-3 on the MCA portal along with identity proof, address proof, and a passport-sized photograph.

Step 3: Name Reservation for LLP

The next step is to reserve a unique name for the LLP by filing Form RUN-LLP (Reserve Unique Name – LLP) on the MCA portal.

Key Points to Keep in Mind:

• The name should not be identical or similar to an existing LLP or company.

• The name should comply with the naming guidelines issued by MCA.

• Once approved, the name will be reserved for 90 days.

Step 4: File Incorporation Form for LLP

After the name approval of your LLP, filing Form FiLLiP (Form for LLP Incorporation) is the next step. The form should be filled out with necessary details, including details of the firm, registered office address, proposed LLP partners, and other relevant information.

Documents Required:

• PAN card of partners

• Address proof of partners (Aadhaar, Passport, Voter ID)

• Partnership deed of the existing firm

• Consent from all partners for conversion

• Proof of registered office (utility bill, rental agreement, NOC from owner)

Step 5: File Application for Conversion

To convert a partnership firm into an LLP, it is required to file Form 17 (Application for conversion of a firm into LLP) along with Form FiLLiP.

Important Considerations:

• Consent from all existing partners is mandatory.

• The existing liabilities, assets, and business operations of the partnership firm are transferred to the LLP.

• The partners of the firm automatically become partners in the LLP.

Step 6: Draft & File LLP Agreement

Once the LLP is incorporated, an LLP Agreement must be drafted and submitted in Form 3 within 30 days of incorporation.

Key Clauses in LLP Agreement

• Name of the LLP and its registered office

• Partners' contribution & profit-sharing ratio

• Rights, duties, and responsibilities of partners

• Dispute resolution and exit clauses

Step 7: Obtain Certificate of Incorporation & Update Records

Upon successful document verification by the Registrar of Companies (ROC), the LLP will be issued a Certificate of Incorporation. After obtaining a Certificate of Incorporation, the firm must also;

• Apply for PAN and TAN in the name of LLP.

• Update business licenses, GST, and Bank Accounts with the new details of the LLP.  

• Inform clients, vendors, and authorities.  

Conclusion

Converting a partnership firm into an LLP is a strategic move for businesses looking for increasing their credibility, and ease of operations. Adhering to the legal procedure and complying with the Companies Act and LLP Act can ensure a smooth transition of a firm into an LLP and enjoy benefits it has to offer.

  

If you want to get this transition done smoothly, it's better to consult a legal expert or professional as he will help avoid errors and thus preventing delays in registration.

Make the shift today and take your business to the next level with an LLP!