A Partnership firm is a business entity in which two or more people run a business together and divide the profits in ratios that the involved parties agreed upon. Limited Liability Partnership is a hybrid business entity, which combines the aspects of a partnership and a company having a separate identity from its partners. There are many benefits inherent of a Partnership to Limited Liability Partnership conversion. Personal assets of the partners will also be liable if the business entity is a Partnership firm, whereas liability will be limited to the extent of capital contribution in a Limited Liability Partnership. Prospect for more flexibility, scope for unlimited partners and perpetual succession are the other major advantages that encourage Partnership firms to get converted into Limited Liability Partnership. Better prospect for investment attraction too is there for a Limited Liability Partnership since it is more organized, and has a corporate structure.
In order to be eligible for conversion, the Partnership firm must be registered under Indian Partnership Act, 1932. All partners of the firm shall be partners of the Limited Liability Partnership as well, while applying for conversion. However, partners can be changed post conversion. Partnership firms do not require Digital Signature Certificate (DSC) where as it is obligatory for Limited Liability Partnerships. All designated partners must obtain Director Identification Number (DIN) or Designated Partner Identification Number (DPIN).
Reserving a unique name for the proposed Limited Liability Partnership is the first step towards conversion. Two proposed names can be given. The name is then submitted for approval.
Unlike Partnership firms, Digital signature is mandatory for Limited Liability Partnerships. Obtaining Director Identification Number (DIN) and Digital Signature Certificate (DSC) for all the designated partners is the next step of conversion.
Application form furnishing proposed name of the Limited Liability Partnership, name, address, registration and partnership agreement details of the firm, and details regarding the number of partners, capital contribution and secured creditors needs to be filed with the RoC. Partners’ consent statement, statement of assets and liabilities of the firm certified by a practising Chartered Accountant and copy of the latest Income Tax Return acknowledgement too need to be submitted along with.
After due scrutiny, the Registrar approves the application and issues the Certificate of Registration for the Limited Liability Partnership. The firm will stand dissolved thereof, and the assets, liabilities, rights and privileges vested in the firm shall be vested in the Limited Liability Partnership.
Within 15 days from the date of incorporation, intimation regarding the conversion into Limited Liability Partnership and the related details of the Limited Liability Partnership need to be submitted to the Registrar of Firms in Form – 14. Within 30 days of incorporation of the Limited Liability Partnership, the LLP Agreement containing the name of the Limited Liability Partnership, name of the designated partners and other partners, form of capital contribution and profit sharing ratios, rules governing the Limited Liability Partnership, and rights and duties of the partners has to be submitted in Form LLP – 3. All proceedings that were pending against the firm as well as any order or judgement either in favour or against the firm may be enforced against the Limited Liability Partnership.
Partnerships imply unlimited liabilities to the partners concerned. Partners are jointly or severally liable for the debts. In Limited Liability Partnership, as the name denotes, the liability of partners is limited. Also, a partner will not be held liable for the acts of other partners.
There are many reasons why Partnership firms prefer to get converted into Limited Liability Partnerships. Limited Liability Partnerships hold prospect for more flexibility and unlimited partners. Perpetual succession is another benefit inherent of the conversion.
All existing contracts and agreements of the Partnership firm shall continue to be in force with the newly incorporated Limited Liability Partnership as the party. Similarly, all the authority conferred on the firm shall be conferred on the Limited Liability Partnership.
Yes, it is. Partnership firms do not require Digital Signature Certificate. But it is a prerequisite for Limited Liability Partnerships. Hence, obtaining Digital Signature Certificate is crucial for conversion.