Conversion of Partnership to Limited Liability Partnership

Conversion of Partnership to Limited Liability Partnership - Process, Procedure, Document Required, Fees, Eligibility, Duration

Overview

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

• A Limited Liability Partnership is a separate legal entity whereas a Partnership is not.
• The LLP members have limited liability. The liability is limited to the extent of their capital contribution, whereas the liability in Partnership is unlimited. Personal assets of the partners are also liable in Partnership.
• In an LLP, there is no limit to the number of people who can be a part of it. But in a Partnership, there can’t be a maximum of 20 members.

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:

• Under the Partnership Act of 1932, the partnership firm to be converted must be registered.
• The LLP's partners must be all of the firm's partners.
• Digital Signature Certificate (DSC) is required.
• A Director Identification Number (DIN)/Designated Partner Identification Number (DPIN) must be acquired.