Company IncorporationLLP

What Are Some of the Requirements for Converting a Partnership to an LLP

The experts at Vakilsearch hold that converting your partnership business into an LLP offers added advantages. Learn all the requirements for conversion of a partnership business into an LLP.  In most cases, a business can have more than one partner. Rather than continuing a business in a partnership model, it is highly beneficial to register it as a Limited Liability Partnership (LLP). This will help your business to grow. 

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LLP is a Corporate unit that governs a company and provides a great scope of improvement, unlike a partnership which relies upon the will of the members to share the lawful entity. There is no limit to the number of partners in an LLP. These are some of the characteristics of LLP

  • LLPs will provide more value and worthiness to partnerships
  • They are eligible to generate new capital for expansion
  • Multidisciplinary LLPs involve experts of different domains who can collaborate to attain the objectives 
  • LLPs can be merged into buyouts, joint ventures, etc with other LLPs whereas partnerships cannot be linked with additional companies.

Requirements for Conversion of Partnership to LLP 

To convert your partnership into an LLP, the following requirements have to be met

  • Make sure that all the income tax returns are up to date 
  • Approval from all the unsecured creditors for the proposed modification
  • At least two designated members should be present
  • One of the designated partners must be an Indian resident
  • There are no clear rules on the percentage of capital, but there has to be some kind of investment from all the partners of the firm
  • The liability of the partners is restricted to the quantity of equity provided
  • There is no limit on the minimum quantity of capital amount to be allotted for the firm by the company partners
  • Detailed flexibility in organising the company
  • Partners should operate the company according to the terms and conditions interpreted in the LLP Agreement.

Background for Conversion of Partnership Firm Into LLP

A company may upgrade into an LLP by the requirements of Section- 55 of LLP Act, 2008 along with a second schedule. When compared to the LLP, partnership companies are at a disadvantage as they do not provide limited liability for the partners, which will reduce the legal entity’s significance, and capacity to adopt an endless number of members and comfort of ownership transfer. The beginning of LLPs through the Limited Liability Partnership Act, 2008 has made LLPs the exclusive unit for small and medium-sized companies. 

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Eligibility to Convert a Partnership Firm Into LLP

  • One of the most important requirements for converting a partnership to an LLP is that the LLP formed from the partnership has the same number of partners as that of the original partnership
  • The formed LLP must not have any newer or fewer partners than the partnership
  • If you want to add a partner to an LLP, you must first convert the partnership to an LLP and then add the partner to the newly formed LLP
  • On the other hand, if you want to remove a partner, our experts recommend that you remove the partner before you start the process of converting the partnership to an LLP.

Benchmarks for Conversion of Partnership Firm into LLP

  • The company may or may not be registered with the company registration authority 
  • All partners must consciously agree to the LLP
  • All partners become LLP partners in the same proportions as the capital amount invested in the company at the time of conversion
  •  Each partner must contribute to the LLP
  • Director Identification Number (DIN) must be obtained for all specified partners
  • A Digital Signature Certificate (DSC) must be obtained for at least one designated partner.

Why Is an LLP Better Than a Partnership Firm? 

  • There is no limit to the number of partners in an LLP
  • The losses on the partners are restricted to the amount of capital invested to the company by the partners
  • There is no limit on the minimum amount of money to be invested 
  • LLPs have a higher worth and are deemed to be safe when compared to partnerships
  • If the firm is looking forward to attaining more funding then forming an LLP is the best choice. It enhances the creditworthiness of the firm
  • The multidisciplinary LLPs are authorised wherein experts of various domains can collaborate
  • Further, CA companies are now enabled to restore themselves into LLP and improve their order of systems
  • LLP configuration is also apt for PE funds, joint ventures, and venture capital funds, which is not possible in the case of a partnership firm
  • Another major advantage of having an LLP is it permits mergers and acquisition with other companies, whereas it is not possible in a partnership.

How Vakilsearch Can Help in LLP Registration

The experts at Vakilsearch recommend forming an LLP rather than a partnership business because an LLP provides the same benefits as a private limited company with limited liability while providing the framework of a partnership firm. You can easily get in touch with our experts and they will help in registering your LLP with the Ministry of Corporate Affairs (MCA). Our experts can also help you to pick the right company name and draft the documents required for the company registration. Reach out to us right now.

Read more:

  1. Process for converting Partnership firms into an LLP
  2. How does conversion of a partnership into an LLP affect
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