Which Entity cannot be Converted into LLP?

This blog discusses, which entities cannot be converted into an LLP, and the benefits and eligibility requirements needed for entities to turn into LLPs.

It is becoming increasingly common for business owners to convert their businesses from a traditional business structure such as a sole proprietorship, partnership, or corporation to a Limited Liability Partnership (LLP). This type of partnership allows business owners to limit their liability for debts and other obligations of the business. However, not all businesses can be legally converted into an LLP. This article will discuss which entities cannot be converted into an LLP. 

An LLP is a type of business entity where at least two or more partners share the responsibility of conducting business and are jointly and equally liable for their debts and other liabilities. This type of business entity offers a variety of benefits, including limited liability, flexibility in management, tax benefits, and protection of business assets. Vakilsearch, India’s leading legal services platform, provides an easy and reliable way to help business owners convert their business to an LLP. The legal advisor at Vakilsearch make the entire compliance procedure simple and try to complete the process as early as possible. 

Governance and Benefits

1. Limited Liability: One of the most significant benefits of an LLP is the limitation of personal liability for business debts and liabilities. The business owners are not liable for the debts and liabilities incurred by the limited liability partnership. This means that if the LLP is sued, the owner’s assets are not at risk.
2. Tax Benefits: An LLP offers several tax benefits to its members. For example, the LLP is not subject to double taxation, and the profits and losses of the business are passed through to the partners, who report them on their tax returns. This allows the partners to take advantage of various deductions and credits that are not available to other business entities.
3. Flexible Management: An LLP is a flexible type of business entity that allows the partners to decide how they will conduct the business. The members can determine the rights and responsibilities of each partner and the method of management, such as who will make decisions and how profits will be distributed.
4. Protection of Business Assets: An LLP protects business assets, as the members are not personally liable for the debts and liabilities of the business. This means that creditors cannot pursue the members’ assets to satisfy any debts or liabilities of the business.
5. Ease of Formation: An LLP is relatively easy to form and maintain. The members are not required to adhere to the same statutory requirements as other business entities, such as filing annual reports and holding annual meetings. This makes the formation and maintenance of an LLP less time-consuming and expensive.  Connect with Vakilsearch for  an easy to convert business to an LLP. 

Eligibility for Conversion

1. The business must be registered in India: To be eligible for conversion to an LLP, the business must be registered in India. This means that any foreign business entity, such as a foreign corporation or LLC, cannot be converted into an LLP.
2. The business must comply with all applicable laws and regulations: The business must comply with all applicable laws and regulations to be eligible for conversion to an LLP. This includes any laws or regulations related to taxes, labour, and environmental protection.
3. All members must agree to the conversion: All of the members of the business must agree to the conversion to an LLP. This includes all shareholders, partners, or members of the business, as applicable.
4. The business must have a minimum of two designated partners: To be eligible for conversion to an LLP, the business must have a minimum of two designated partners. The designated partners must be individuals, and at least one of them must be a resident of India.
5. The business must have a minimum of three members: To be eligible for conversion to an LLP, the business must have a minimum of three members. The members can be individuals or corporate entities, such as a corporation or LLC.
6. The business must have a minimum of two designated partners and two designated members: To be eligible for conversion to an LLP, the business must have a minimum of two designated partners and two designated members. The designated partners must be individuals, and at least one of them must be a resident of India. The designated members must be corporate entities, such as a corporation or LLC.
7. The LLP must not be engaged in any prohibited activities: An LLP company registration in India cannot be engaged in any activities that are prohibited by law. This includes activities such as banking, insurance, and the sale of certain securities.
8. The LLP must have a minimum capital contribution: An LLP must have a minimum capital contribution of at least ₹ 1 lakh.
9. The LLP must have a registered office: An LLP must have a registered office in India.

Companies that cannot be Converted into an LLP

1. Sole Proprietorship: A sole proprietorship is a business owned and operated by one person and cannot be converted into an LLP.
2. Charitable Trusts: Charitable trusts are not eligible for conversion to an LLP.
3. Non-Profit Organisations: Non-profit organisations are not eligible for conversion to an LLP.
4. Public Sector Companies: Public sector companies, such as state-owned enterprises and government-owned companies, are not eligible for conversion to an LLP.
5. Foreign Companies: Foreign companies, such as foreign corporations and LLCs, are not eligible for conversion to an LLP.

Conclusion

Converting a business entity to an LLP offers a variety of benefits, including limited liability, flexible management, tax benefits, and protection of business assets. However, not all entities are eligible for conversion to an LLP. This article has discussed which entities cannot be converted into an LLP. With Vakilsearch, you can easily and securely convert your business entity to an LLP in a few simple steps.