Overview of Converting a Partnership into an LLP

The concept of Limited Liability Partnership (LLP) has become more favorable compared to the traditional partnership structure. An LLP is a separate legal entity, offering the benefits of both a Private Company and a Partnership Firm. This structure provides flexibility in the internal control and operations of the business, an advantage over the traditional Partnership model. As a result, converting a Partnership into an LLP is considered a wise business decision to better secure the rights and liabilities of partners.

Partnership Firm Concept

In India, a partnership firm is a business formed by two or more individuals. It operates based on a principal-agent relationship and is governed by the Indian Partnership Act, 1932.

The Partnership Deed is an agreement that outlines the firm's details, including the nature of the business, partners' rights and liabilities, and profit-sharing ratios.

Unlike an LLP, a partnership firm is not a separate legal entity, meaning the partners do not have limited liability protection.

Limited Liability Partnership Concept

A Limited Liability Partnership (LLP) is a business structure that combines the benefits of limited liability for partners with the flexibility of a partnership firm. The partners can organize the firm's internal workings similar to a partnership, while enjoying limited liability protection.

An LLP is governed by an LLP agreement, which outlines the firm's assets, liabilities, and the partners' rights and duties.

As a separate legal entity, an LLP offers limited liability to its partners. This makes an LLP a hybrid business model, combining the features of a partnership firm and a private company. However, it differs from a Limited Liability Company (LLC) in its structure and operations.

Benefits of Converting a Partnership into LLP

Converting a partnership firm into an LLP offers several advantages:

1. Management Flexibility
   LLPs provide partners with the freedom to manage operations and day-to-day affairs with greater flexibility.

2. Perpetual Succession
   An LLP is not affected by the death or departure of any partner, ensuring continuity of the business through perpetual succession.

3. Attraction of Investment
   LLPs are attractive to venture capitalists and foreign investors due to their hybrid structure, combining the benefits of a corporate setup with organizational flexibility.

4. Professional Collaboration
   Professionals from various fields can collaborate within an LLP, making it a versatile platform for multiple disciplines.

Criteria for Converting a Partnership into LLP

In India, the criteria for converting a partnership firm into an LLP are as follows:

• The partnership firm must be registered under the Indian Partnership Act, 1932.
• If the firm is not registered under this Act, it must specify the statute under which it is registered.

Procedure for Converting a Partnership into LLP

The steps involved in converting a partnership firm into an LLP are as follows:

1. Digital Signature Certificate (DSC)
   All partners of the partnership firm must obtain a Digital Signature Certificate (DSC), which is required to fill out various forms during the conversion process.

2. DIN or DPIN (Director Identification Number)
   Each partner must obtain a Director Identification Number (DIN) or Designated Partner Identification Number (DPIN). These are unique identification numbers issued by the government and are valid for a lifetime.

3. Name Approval
   The partners must apply for name approval of the proposed LLP through the Ministry of Corporate Affairs (MCA). They must file Form 17 for conversion and submit the SRN (Service Request Number) for the name reservation (RUN) of the LLP.

4. Filing of Form Fillip
   The partners must submit the incorporation forms for the LLP. If any partner does not have a DIN, they can apply for it through Form Fillip. The following documents need to be attached to the form:

   • Name of the proposed LLP
   • DSC of the designated partners
   • Capital contribution and details of the LLP
   • Contact details of the proposed partners
   • Identification documents (Voter ID, Driving License, Passport) of the partners
   • Latest utility bill of the registered office (within 2 months)
   • Proof of registered office (e.g., Sale Deed, Rent Agreement, etc.)
   • PAN details and bank statements of the designated partners
   • Subscriber sheet and consent
   • Address proof and NOC of the registered office owner
   • Proposed main object of the LLP
   • Details of other directorships or partnerships of the designated partners

5. Filing of Form 3
   Form 3 must be filed with details from the LLP agreement, along with the original copy of the agreement. The agreement should include:

   • Name of the LLP
   • Names of designated partners
   • Number of partners and their capital contributions
   • Profit-sharing ratios
   • Rights and duties of each partner

6. Filing of Form 17
   Form 17 is an application for converting a partnership firm into an LLP. This form includes a declaration from all partners and must be digitally signed. It also requires certification by a Company Secretary, Chartered Accountant, or Cost Accountant. Attachments include:

   • Consent statement from all partners
   • Certified statement of the firm’s assets and liabilities
   • Acknowledgement of the latest Income Tax Return
   • List of secured creditors and their consent for the conversion

7. Certificate of Incorporation
   Once the conversion is completed, the Registrar issues a Certificate of Incorporation for the LLP. This signifies that the assets, liabilities, rights, and privileges of the partnership firm are transferred to the LLP. However, any existing licenses or permits will not automatically transfer, and a new permit may be required.

8. Intimation to Registrar of Firms (ROF)
   The partners must notify the Registrar of Firms about the conversion of the partnership into an LLP by filing Form 14 within 15 days from the registration date. The following documents must be attached:

   • Copy of the Certificate of Incorporation
   • Copies of documents submitted with Form Fillip

Summarised Difference between LLP and Partnership

Liability of Partners before Conversion of Partnership into LLP

Every partner is severally and jointly liable for the liabilities of the firm which were incurred prior to such conversion. However, if any partner discharges their obligation, then they will be indemnified by the LLP.