Conversion of Proprietorship Firm to LLP
A sole proprietorship cannot be directly converted into a LLP as it has only one person. It can be either done by closing the proprietorship and registering an LLP from scratch or by including another person in the business and making him a partner and then converting it to an LLP. Either way it would be a new LLP Registration only.
Get your proprietorship firm converted into LLP in the fastest possible manner.
It usually takes 7 to 10 working days.
- Issue of Incorporation Certificate along with PAN and TAN
- Includes Govt Fees & Stamp duty for Contribution upto Rs. 10,000/-
- Excludes foreign national / Body Corporate as director or business needing RBI/SEBI approval
- Assistance in Opening Bank Account
- Businesses looking to expand or scale operations on higher level
- Businesses looking to convert their existing proprietorship firm into LLP
- Businesses aiming to work globally or with reputed clients
Preparation of Incorporation Documents
Getting those docs signed by the respective stakeholders
Filing of e-Forms with ROF
Receipt of Incorporation Certificate with PAN, TAN, GST, EPF, ESI & Bank Account.
Name, Contact Number and Email Id of all the Stakeholders.
Directors Identification Number, if already.
Self Attested PAN, Aadhar & Passport size photo of all the Stakeholders.
Apostilled Passport, Mobile Bill and other KYC docs in case of NRI Stakeholder.
Latest Month Personal Bank statement of all the Stakeholders.
Specimen Signatures of all Stakeholders.
Few Proposed Business Names along with Objects.
Latest Electricity Bill/Landline Bill of Registered Office.
NOC from owner of registered office, If Owned. (Download Template)
Rent Agreement from Landlord, If Rented/Leased. (Download Template)
Brief description of main business activities of the proposed Company.
Shareholding pattern (50:50 or 60:40) between the Stakeholders.
Authorised & Paid Up Share Capital of the Company.
Limited Liability Partnership
Before starting with the conversion of Proprietorship to LLP, let us understand what is limited Liability partnership. A limited Liability Partnership means a business where the minimum two members are required and there is no limit on the maximum number of members. The liability of the members of an LLP is limited.
Prime reason why the concept of LLP has evolved is because of its simplicity in formation and easy maintenance. It helps owners also to limit their liabilities. This is the biggest advantage of an LLP over a traditional partnership firm. LLP has a blend of the benefits of a Company and a Partnership Firm namely, limited liability feature of a company and flexibility of a partnership firm. No partner is liable on account of unauthorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s misconduct. LLP form of organization is usually preferred by Professionals, Micro and Small businesses that are family owned or closely-held.
Minimum requirement to be fulfilled for conversion of Proprietorship to LLP
A minimum of two Partners are required to start the LLP formation procedure
Two designated partners, one of whom must be an Indian Citizen residing in India
A registered office that is located in India
LLP agreement through which The mutual rights and duties of partners shall be governed between LLP and the partners.
Process of Conversion of Proprietorship Firm to LLP
Application for DIN or DPIN :
The Designated Partner Identification Number (DPIN), which the two proposed designated partners must apply for, requires the following: passport-sized photograph, a scanned copy of either the telephone bill, driver’s license or previous two months bank statement, soft copy of the PAN card and a completely filled form. If the partner is a non-resident Indian, then a copy of the passport will replace the PAN card. The passport copy and address proof should be notarized by the Indian embassy, a foreign public notary or company secretary in full-time employment.
Form 1 is to be filled for name confirmation and Form 2 should be filled for incorporating an LLP after the name is confirmed.
File LLP Agreement:
After the incorporation of the LLP, an initial LLP agreement is to be filed within 30 days of incorporation of LLP.
Benefits of Converting Proprietorship Firm into LLP
Separate Legal Existence
Limited liability partnership is a separate legal entity, and its existence is separate from its partners, unlike the general partnership firm. This makes it possible to own assets and enter into contracts in the name of the LLP or sue a third party in case of any dispute.
The LLP is managed and run according to the LLP agreement. It’s the partners that decide how the LLP would function and divide the duties and responsibilities. Hence, it is a very flexible structure and the partners are free to create their own rules of management which is not possible in other business structures.
Limited Liability of Owners
The liability of Partners is limited to the extent of capital contribution agreed by the partners in the LLP Agreement. The loss or debt of LLP cannot be assigned to partners even while the dissolution of LLP. Further, one partner is not held responsible for the actions of negligence or misconduct of any other partner.
All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the LLP.
The accumulated loss and unabsorbed depreciation of firm is deemed to be loss/depreciation of the successor LLP for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor LLP.
Being a LLP has its own higher market value and brand image as compared to the proprietorship firm, for banks as well as the stakeholders. Funding & Investment also is easy as compared to the proprietorship firm in terms of a LLP.
No Stamp Duty
All movable and immovable properties of the firm automatically vest in the LLP. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.
No Capital Gains
No capital gains tax shall be charged on transfer of property from the firm to the LLP.
Compared to a Private Company, there is a lower compliance requirement in case of LLP, including the audit requirement. The requirement of statutory audit arises on reaching a certain level of turnover or contribution. Further, provisions such as the meeting of partners, operation through resolutions are relaxed and not mandatory in every case.