Proprietorship to Limited Liability Partnership

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

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Proprietorship to Limited Liability Partnership

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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

Documents required for conversion into LLP

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Formulation of LLP Name

Convert into an LLP in 3 Easy Steps

*Subject to Government processing time

Process to convert proprietorship to LLP

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Private Limited CompanyOne Person CompanyLimited Liability PartnershipPartnership FirmProprietorship Firm
ActCompanies Act, 2013Companies Act, 2013Limited Liability Partnership Act, 2008Indian Partnership Act, 1932No specified Act
Registration RequirementMandatoryMandatoryMandatoryOptionalNo
Registration under the Act is mandatory to set up business as Private Limited CompanyRegistration under the Act is mandatory to set up business as One Person CompanyRegistration under the Act is mandatory to set up business as Limited Liability PartnershipBoth registered and unregistered partnerships are legal, but registered entity is preferredThere is no registration criteria prescribed. But registration to establish legal identity is recommended
Number of members2 – 200Only 12 – Unlimited2 – 50Only 1
Requires minimum 2 and not more than 200 shareholdersOnly an individual being Indian resident can be the shareholderNo bar to maximum number of partners, but minimum 2 Designated Partners are requiredIt is formed with minimum 2 partners, but not exceeding 50The proprietor is the only owner of the firm
Separate Legal EntityYesYesYesNoNo
Private Company is separate entity and can own assets in its nameOPC is separate entity and can own assets in its nameLLP is separate entity from partners and can own assets in its namePartnership firm does not have any separate identity from its partnersProprietor and the business are same and not different
Liability ProtectionLimitedLimitedLimitedUnlimitedUnlimited
Liability of members is limited to the extent of unpaid value of shares subscribedLiability of member is limited to the extent of unpaid value of shares subscribedLiability of partners is limited to the capital amount agreed to introducePartners are jointly and severally liable to pay the debts of the Partnership FirmProprietor’s liability is to pay-off all debts and obligation of firm
Statutory AuditMandatoryMandatoryDependentNot mandatoryNot mandatory
Auditor must be appointed within 30 days of incorporationAuditor must be appointed within 30 days of incorporationApplicable when turnover exceeds INR 40 Lakh or contribution exceeds INR 25 LakhStatutory audit not applicable. Tax audit may be applicable based on turnoverStatutory audit not applicable. Tax audit may be applicable based on turnover
Ownership TransferabilityShares can be transferred with consent to other ShareholdersNoYesNoNo
Shares can be transferred with consent to other ShareholdersShares are not transferable easilyOwnership can be changed with consent of other partnersOwnership is not transferable easily, clause of partnership deed should be referredFirm in no different from proprietor and so ownership is not transferable
Uninterrupted ExistenceYesYesYesNoNo
Change in members or director does not affect the existence of Private CompanyChange in members or director does not affect the existence of OPC.
The nominee will take place of member
Change in Partners or Designated Partners does not affect the existence of LLPChange in partner leads to dissolution or formation of another partnership firmDeath or insolvency of proprietor directly affects the firm
Foreign ParticipationAllowedNot AllowedAllowedNot AllowedNot Allowed
Foreign national are allowed to invest under the Automatic RouteMember, nominee and director must be Indian residentForeign nationals are allowed to subject to FDI GuidelinesForeign nationals are not allowed to be a partnerForeign Nationals cannot commence proprietorship business
Tax RatesModerateModerateHighHighLow
Tax rate applicable for small companies is reduced to 25%Tax rate applicable for small companies is reduced to 25%With tax rate of 30% on business profit, tax benefits to partners is highWith tax rate of 30% on business profit, tax benefits to partners is highTax rates of individual applied to Proprietorship Firm
Statutory CompliancesHighModerateModerateLessLess
Apart from Annual filings, it has to comply with various provision laid down, but less compared to public companyApart from Annual filing, compliance are less compared to Private CompanyAnnual filing and few event based filings are necessarySeparate ITR of partnership is filed, else there are no filing requirementNo compliances and no requirement to file separate ITR
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Explore conversion of proprietorship to LLP in India

Frequently Asked Questions

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.

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.

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.

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.

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)

Profit making is an essential condition for an LLP; hence LLPs cannot be incorporated for undertaking non-profit activities.

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.

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.

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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Proprietorship to Limited Liability Partnership

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