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An LLP combines the advantages of both a partnership and a company, offering greater operational flexibility when a business converts from a private limited company. It remains a separate legal entity with limited liability, but unlike a private company where directors manage operations, LLP management lies directly with the partners.
LLPs are governed by an LLP Agreement signed by the partners and require fewer compliances, making them easier to operate. This structure maintains the benefits of a partnership while providing the security and credibility of a company. Converting a private limited company to an LLP requires approval from the Ministry, which is obtained through an online application along with the necessary documents.
Partners in an LLP receive multiple types of returns, including remuneration, profit shares, and interest on capital. Remuneration is paid for their active involvement in the business, while the profit share represents their portion of the profits earned from business operations.
No partner is held responsible for the unauthorized actions of other partners. This protects individual partners from being liable for wrongful decisions or misconduct made by others in the business.
LLPs have fewer compliance requirements compared to Private Limited Companies. They are not obligated to maintain statutory records and registers, and the need for a statutory audit is also relaxed for LLPs.
Partners in an LLP are directly involved in its daily operations and management. Unlike a company, an LLP is governed by an LLP Agreement mutually agreed upon and executed by the partners.
Consent of all the directors and shareholders of the company for conversion in the given format
NoC from the tax authorities is required to be obtained
List of all the secured creditors along with their consent
The financial statement of the previous year to be provided aling with ITR filed
DSC of all existing directors
PAN card, certificate of incorporation, GST registration or any other applicable documents/registrations.
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Upon conversion of the company or partnership into an LLP, all tangible and intangible properties, assets, rights, privileges, liabilities, and obligations of the company or firm, along with its entire business undertaking, shall automatically transfer to and vest in the Limited Liability Partnership without the need for any additional assurance, act, or deed.
The Act states that upon conversion, any approval, permit, or license granted to the Private Company under any other law shall, subject to the provisions of that respective law, be transferred to the converted entity—i.e., the LLP. However, certain registrations, such as GST, may require a fresh application to be filed.
LLPs must file annual returns with the Registrar each year. However, if the LLP’s turnover is less than ₹40 lakhs and/or its capital contribution is below ₹25 lakhs, auditing of financial statements is not required.
A key difference between an LLP and a company lies in their internal governance structure. LLPs offer greater flexibility and have fewer compliance requirements compared to companies.
Yes, the LLP Act, 2008 permits Foreign Nationals, including foreign companies and LLPs, to incorporate an LLP in India, as long as at least one designated partner is a resident of India. However, the LLP and its partners must comply with all applicable Foreign Exchange laws, rules, regulations, and guidelines.
In the case of conversion to an LLP, the applicability of capital gains tax depends on specific conditions. Generally, the transfer of capital assets, intangible assets, or company shares by shareholders during the conversion is not subject to capital gains tax. However, if there is a change in shareholding or profit-sharing ratio, and any benefit arises from the conversion, capital gains tax may become applicable.
In most cases, the transferability of licenses depends on the terms and conditions of the specific license. If transfer is not permitted, the promoters will need to obtain fresh registrations, such as GST or FSSAI.
The application for PAN and TAN in the name of the LLP must be submitted after the Certificate of Incorporation is issued. The physical PAN card will be delivered to the registered office address once dispatched by the Income Tax Department.
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Convert proprietorship to LLP to leverage on added benefits with limited liability