Proprietorship to Limited Liability Partnership

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.)