Get an insight into the process of converting an unregistered partnership into an LLP. Know the legal documents required and the benefits of making the transition.
The formation of a Limited Liability Partnership (LLP) is one of the options available to business owners who are looking to expand their business. It is a wonderful way to protect the personal assets of the owners and allows them to increase their capital and resources.
But what happens if you already have a partnership in place and are looking to convert it into an LLP? This article will explore the process of converting an unregistered partnership into an LLP, including the steps required and the legal implications of doing so.
It will also discuss the benefits of forming an LLP and the possible drawbacks. Connect with Vakilsearch the all-in-one platform for converting your unregistered partnership into an LLP.
Overview of Unregistered Partnerships and Limited Liability Partnerships (LLPs)
An unregistered partnership is a type of business structure in which two or more people come together to carry on a business to make a profit. In an unregistered partnership, the partners are personally liable for the debts and obligations of the business. This means that if the business is unable to pay its debts, the partners may be held responsible for paying them out of their assets.
A limited liability partnership (LLP) is a business structure that combines the elements of a partnership and a corporation. In an LLP, the partners are not personally liable for the debts and obligations of the business. This means that if the business is unable to pay its debts, the partners’ assets are protected. LLPs are often preferred by professional service firms, such as law or accounting firms because they offer the benefits of a partnership (such as the ability to share profits and losses) while protecting the partners from personal liability.
Benefits of Converting an Unregistered Partnership into an LLP
There are several benefits of converting an unregistered partnership into a limited liability partnership (LLP):
- Limited Liability Protection: One of the main benefits of an LLP is that the partners have limited liability for the debts and obligations of the business. This means that if the business is unable to pay its debts, the partners’ assets are protected. In contrast, in an unregistered partnership, the partners are liable for the business’s debts and obligations.
- Increased Credibility: An LLP is a more formal business structure than an unregistered partnership, and it may be perceived as more credible by potential clients and business partners.
- Separation of Personal and Business Finances: In an LLP, the business is treated as a separate legal entity, which can help to distinguish between personal and business finances. This can make it easier to manage the finances of the business and may be particularly useful for partners who want to separate their assets from those of the business.
- Potential Tax Advantages: LLPs may be eligible for certain tax advantages, such as the ability to file a tax return as a partnership rather than as individual partners.
- Easier to Bring on New Partners: If an unregistered partnership wants to bring on new partners, it may need to dissolve and form a new one. In contrast, LLPs can easily add new partners without dissolving the partnership.
Overall, converting an unregistered partnership into an LLP can provide increased liability protection, improved credibility, and potential tax advantages. It can also make it easier to manage the finances of the business and bring in new partners.
Steps for Converting an Unregistered Partnership into an LLP
To register a limited liability partnership (LLP) in India, follow these steps:
- Obtain Digital Signature Certificate (DSC): The first step of registering an LLP is to obtain a Digital Signature Certificate (DSC) for the proposed directors of the LLP. The DSCs are issued by government-approved certifying agencies.
- Obtain Designated Partner Identification Number (DPIN): After obtaining the DSCs, the proposed directors must apply for a Designated Partner Identification Number (DPIN) through the MCA portal.
- Obtain Name Approval: After obtaining the DPINs, the next step is to apply for name approval. The name should be unique and should not resemble any existing LLP or company.
- Filing of Incorporation Documents: Once the name is approved, the proposed directors need to file the LLP Incorporation documents with the MCA. These documents include the LLP Agreement, Statement of Capital, and the required forms.
- Payment of Registration Fees: The next step is to make the payment of the registration fees. The fees can be paid through the MCA portal using a credit card or net banking.
- Obtain Certificate of Incorporation: Once the registration fees are paid and the documents are accepted, the MCA will issue the Certificate of Incorporation. This Certificate is the last step in the process of registering an LLP in India.
Considerations Before Converting an Unregistered Partnership into an LLP
- Review the Partnership Agreement: Before you convert an unregistered partnership into an LLP, you should review the partnership agreement. This document should outline the ownership structure, rules, and regulations of the partnership.
- Assess the Benefits and Drawbacks: An LLP has many benefits, including limited liability, limited taxation, and increased credibility. However, there are also some drawbacks that you should consider, such as increased paperwork and costs.
- Consult a Professional: It is important to consult a qualified professional before making any decisions about converting an unregistered partnership into an LLP. You can choose Vakilsearch for any legal proceedings as they are one of India`s largest legal services platform
- Determine the Cost: Converting an unregistered partnership into an LLP can be expensive. You should determine the cost of filing the necessary paperwork, registering the LLP, and any other associated fees.
- Create an Operating Agreement: Once you have decided to convert an unregistered partnership into an LLP, you should create an operating agreement. This document should outline the rights and responsibilities of all partners and the procedures for decision-making, dispute resolution, and dissolution of the LLP.
- Prepare the Necessary Documents: To complete the conversion process, you must prepare and file the necessary documents with the relevant government authorities. This includes registering the LLP, filing the Articles of Association, and paying any applicable fees.
Conclusion
To conclude, it can be said that converting an unregistered partnership into an LLP is a beneficial move. It helps the business to become more professional, gain limited liability and provide a better corporate image. The process is also relatively easy. However, it is important to do extensive research to ensure you are fully compliant with the relevant laws. Also, it is recommended to use a professional legal advisor or qualified lawyer to help you with the conversion process. Vakilsearch provides a comprehensive suite of services that can be used to help you through the conversion process and make sure that you adhere to all the relevant laws.
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