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In most cases, a Partnership firm converts to a Limited Liability Partnership (LLP) to decrease its liabilities. An LLP is a business with a minimum of two members and no maximum number of members. Individual partners are protected from joint liability caused by another partner's misconduct after converting to an LLP because no partner is liable for the illegal actions of other partners. LLPs also provide greater freedom and limitless partners, compelling a Partnership firm to convert to an LLP.
Partnerships change to LLPs to take their business to the next level. When a Partnership is converted to an LLP, a joint venture is formed consisting of partners whose liability is limited to the capital invested by each. The partners' personal property is not included to pay the firm debts. So, Partnerships convert to LLP to reduce their liabilities.
Partnership vs. LLP
Advantages of converting to LLP
The following advantages accrue to a Partnership that transforms into an LLP:
Liability: In contrast to a Partnership, an LLP arrangement eliminates liability. Partners' liability in an LLP is limited to the amount of capital contribution agreed upon by them. The loss or debt of an LLP cannot be passed to the partners.
Flexibility: The LLP agreement governs the operation of the LLP. The partners are given the freedom to run their businesses in this form of company. Each partner has the authority to control the business entity and to shape its position in business operations.
Legal entity: An LLP is a separate legal entity with its assets. It has the authority to enter into contracts and own property in its name.
Easy formation: It is easy for qualifying parties to set up an LLP. LLP partners must complete and file a registration form with the appropriate government department. A Partnership can be simply transformed into an LLP.
Existence: Even if the partners change or die, the LLP can continue to exist. It has a never-ending succession. Continuation of the business is not affected by the exit or death of members.
Conditions to convert to LLP
To convert to LLP, the following conditions are necessary to be met:
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