Proprietorship to Limited Liability Partnership

Convert proprietorship to LLP to leverage on added benefits with limited liability

Change from Proprietorship to LLP

Limited liability partnership in India was introduced through the LLP Act, 2008. The basic concept behind adopting LLP was to provide a structure that is easy to maintain and reduces the liability as compared to a sole proprietorship structure. LLP combines the advantages of both the Company and Partnership firm into a single form of organization and offers a hybrid structure. Hence, conversion of sole proprietorship into LLP is a good business decision. Under LLP, one partner is not responsible or liable for another partner’s misconduct or negligence. LLP also provides limited liability protection for the owners from the debts of the LLP. Therefore, LLP is preferred mostly by Professionals, Micro and Small businesses that are family-owned or closely-held.

Benefits of conversion from proprietorship to 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.
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.
Flexibility to Operate
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.
Lower Compliance Requirement
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.

Documents required for conversion into LLP

Partner’s Address Proof
Aadhar Card/ Voter ID/ Passport/ Driving License of all partners
Business Address Proof
Electricity Bill/ Telephone Bill of the registered office address
Rent Agreement
Rent Agreement of the registered office should be provided, if any
NOC from owner
No Objection Certificate to be obtained from the owner of registered office
Latest Passport size photograph of all partners
PAN Card
PAN Card of all partners
Foreign nationals may provide passport
NRI/ Foreign National
In case of NRI or Foreign National, documents of partner must be notarized or apostilled

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Formulation of LLP Name

Unique Name

Mainly it builds the LLP’s brand and preferably be a coined word

Business Object

Second part of the name should suggest a business activity of the LLP

Constitution Type

Name of the LLP must end with “LLP” or “Limited Liability Partnership” as suffix

Convert into an LLP in 3 Easy Steps

  • It takes less than 10 minutes to fill in our Questionnaires
  • Provide basic details & documents required for registration
  • Make payment through secured payment gateways
  • Assigned Relationship Manager
  • Procurement of Digital Signatures (DSC)
  • Application for Name Reservation
  • Documents drafting including LLP agreement
  • Certificate of Incorporation
  • Application for PAN and TAN
  • All it takes is 21 working days*

*Subject to Government Processing Time

Process to convert proprietorship to LLP

  • Consultancy and assistance for conversion
  • Collection of basic information & documents
  • Application for Digital Signature Certificate (DSC)
  • Application for DIN allotment of Designated Partners
  • Checking Name availability
  • Application for Name Reservation
  • Drafting the incorporation document
  • Filing form for converting sole proprietorship to LLP
  • Certificate of Incorporation
  • Application for PAN and TAN of LLP
  • Drafting of LLP Agreement, with conversion clause
  • Payment of Stamp Duty
  • Filing of LLP Agreement with MCA
  • Government processing time
Explore conversion of proprietorship to LLP in India

Frequently Asked Questions

Whether LLP can be registered for Not-for-profit activities?
Profit making is an essential condition for an LLP; hence LLPs cannot be incorporated for undertaking non-profit activities.
What are the statutory compliance required for a registering a Limited Liability Partnership?
Once the Limited liability partnership is incorporated, it shall comply with the annual compliance requirements. In case the capital contribution of the LLP is less than ₹25 lakhs or has a turnover of less than ₹40 lakhs, the financial statements are not required to be audited. To know more details, please read our blog post “Mandatory Compliances for a Limited Liability Partnership (LLP)
Can LLP carry on more than one business activities?
YES, under LLP one can carry more than one business, provided, the businesses are related or are of the same nature. Unrelated activities such as fashion Designing and Accountancy cannot be carried under the same LLP. The business activities are mentioned in the agreement and must be approved from RoC.
Do I need to apply for a fresh registration in the name of LLP or amend the registrations in the name of Proprietorship Firm?
The process for conversion of proprietorship into LLP shall be filed with the concerned department as registrations in the name of Proprietorship Firm cannot be amended. All the registrations are taken in the name of Proprietorship, if not required for any other purpose, shall be surrendered.
Are there any limitations on being a partner when converting sole proprietorship to LLP?
The LLP Act, 2008 does not put any limitations in terms of citizenship or residency to be a Partner. Foreign Nationals, including Foreign Companies & LLPs, are allowed to incorporate LLP in India provided at least one of the Designated Partners is resident of India. However, the person should be of age 18 years or above i.e. not a minor and competent to enter into a contract. Also, the proposed Designated Partner shall have DIN.
What are the key requirements/factors for registering an LLP?
Like all partnerships registration requires two or more individuals to be the designated partners, one partner being an Indian national. The registered place of business has to be in India.
What happens to the assets and liabilities of the sole proprietorship?
All the assets and liabilities of the proprietor immediately after the conversion become the assets and liabilities of the LLP. All movable and immovable properties of the proprietor automatically vests in the LLP. No Capital Gains tax shall be charged on transfer of property from Proprietorship firm to LLP. The accumulated loss and unabsorbed depreciation of Proprietorship firm is deemed to be a 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.
Can I continue the trade name of Proprietorship as LLP?
While making an application for name reservation, the trade name of the proprietorship can be applied to procure as the name of LLP. Ministry may grant the same name considering the fact that proprietorship is converted into an LLP, except where the name of the firm is already reserved by any other company/LLP. The approval of the name application is completely at the discretion of MCA.
Is Foreign Direct Investment (FDI) allowed in LLP?
Yes, Foreign Direct Investment (FDI) is allowed in LLP under the automatic route in sectors allowed by the Foreign Investments Promotion Board (FIPB). However, Foreign Institutional Investors (Flls) and Foreign Venture Capital Investors (FVCIs) will not be permitted to invest in LLPs. LLPs will also not be permitted to avail External Commercial Borrowings (ECBs.)
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Convert proprietorship to LLP to leverage on added benefits with limited liability