A limited liability partnership is a variety of partnership in which only some of the partners (depending on the jurisdiction) is liable, so it can exhibit attributes of both partnerships and corporations. Each partner is not liable for the misconduct or negligence of another partner under an LLP.
In contrast to a partnership, which relies on the members' will to share the legal entity, an LLP governs a corporation and allows a lot of room for improvement. There is no limitation to the number of partners in an LLP. These are some of the features of a limited liability partnership.
- LLPs will provide partnerships with greater value and credibility.
- They can raise new funds for expansion.
- Multidisciplinary LLPs bring together specialists from several fields who may work together to achieve the goals.
- LLPs can form buyouts, joint ventures, and other business combinations with other LLPs, but partnerships cannot.
What is a Partnership firm?
Section 4 of the Indian Partnership Act says that a partnership is an agreement by which individuals agree to share profits from a business that they either carry on jointly or one of them carries on for the whole partnership.
Conversion of a Partnership Firm to LLP Background
The following requirements must be satisfied to convert your partnership into a limited liability partnership.
- Ascertain that all income tax returns are current.
- All unsecured creditors must approve the proposed adjustment.
- There should be at least two designated members present.
- A resident of India must be one of the authorised partners.
- There are no set requirements for the percentage of capital, but all of the firm's partners must make some form of investment.
- The partners' responsibility is limited to the amount of stock given.
- There is no minimum amount of capital that the company partners must contribute to the company.
- Detailed flexibility in company organisation
- Partners should run the business by the limited liability partnership Agreement's terms and conditions.
Conversion of a Partnership Firm to an LLP Background
The conditions of Section 55 of the LLP Act, 2008, together with a second schedule, allow a firm to upgrade to an LLP. When compared to LLPs, partnership firms have a disadvantage because they do not provide limited liability for the partners, which reduces the legal entity's importance, as well as the flexibility to add an unlimited number of members and the ease of ownership transfer. The Limited Liability Partnership Act of 2008 founded LLPs as the exclusive unit for small and medium-sized businesses.
Eligibility for LLP Conversion from a Partnership Firm
One of the most crucial prerequisites for converting a partnership to an LLP is that the new LLP have the same number of partners as the original partnership.
- The LLP must not have any more or fewer partners than the original partnership.
- You must first convert the partnership to an LLP before adding the partner to the newly formed LLP.
- If you wish to get rid of a partner, our experts recommend doing so before starting the process of transforming the partnership into an limited liability partnership.
Benchmarks for LLP Conversion from a Partnership Firm
- The company may or may not be registered with the appropriate government agency.
- The LLP must be consciously agreed to by all partners.
- In the same proportions as the capital invested in the firm at the moment of conversion, all partners become LLP partners.
- Each partner must contribute to the LLP, and all specified partners must get a Director Identification Number (DIN).
- At least one selected partner must have a Digital Signature Certificate (DSC).
Why is an LLP preferable to a partnership?
- An LLP can have an unlimited number of partners.
- The partners' losses are limited to the number of capital they have invested in the company.
- There is no minimum quantity of money that must be invested.
- When compared to partnerships, LLPs have a higher value and are considered to be more secure.
- If the company wants to raise more money, becoming an LLP is the best option. It improves the company's creditworthiness.
- Multidisciplinary LLPs have been approved, allowing specialists from diverse fields to work.
- CA firms can also now restore their LLP status and improve their system order.
- PE funds, joint ventures, and venture capital funds can all benefit from an LLP structure, which is not achievable with partnership business.
Another significant benefit of having an LLP is that it allows for mergers and acquisitions with other businesses, which is not feasible with a partnership.
How can Lawgical India assist with LLP formation?
With an LLP, you get the same advantages as a private limited company while still having the structure of a partnership.
You can easily contact our experts, who can assist you in enlisting your limited liability partnership (LLP) with MCA. Our experts can also help you in selecting the appropriate company name and drafting the necessary documents for company registration. You may contact us anytime.
