Proprietorship

to LLP (Limited Liability Partnership)

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How to start Proprietorship to LLP

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Overview

Limited Liability Partnership (LLP) in India was introduced through the LLP Act, 2008. The basic concept behind adopting LLP was to provide a structure which is easy to maintain and minimizes liability as compared to sole proprietorship structure. LLP combines the benefits of both the company and the partnership firm into a single form of organization and provides a hybrid structure. Hence, converting sole proprietorship into LLP is a good business decision.

Reasons Why You Should Convert Proprietorship to LLP

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  • Separate Legal Existence.

    A limited liability partnership is a separate legal entity, and its existence is separate from that of its partners, unlike a general partnership firm. This makes it possible to own the property and enter into a contract in the name of the LLP or sue a third party in case of any dispute.

  • Limited Liability of Owners

    The liability of the partners is limited to the extent of capital contribution agreed by the partners in the LLP agreement. The loss or debt of the LLP cannot be assigned to the partners even during the dissolution of the LLP. In addition, one partner is not held responsible for the acts of negligence or misconduct of another partner.

  • Flexibility to Operate

    The LLP is managed and operated as per the LLP Agreement. It is the partners who decide how the LLP will function and divide the duties and responsibilities. Hence, it is a very flexible structure and the participants are free to make their own rules of management which is not possible in other business structures.

  • Lower Compliance Requirement

    Compared to a private company, LLP has less compliance requirements, including audit requirements. The need for statutory audit arises when a certain level of turnover or contribution is reached. Further provisions like meeting of partners, operation through resolutions have been relaxed and are not mandatory in every case.

    There are many more reasons to choose an Proprietorship to LLP

Eligibility Criteria for Conversion of Proprietorship to Limited Liability Partnership in India

  • Two or more persons should come forward for partnership and at least one of them should be a resident Indian citizen.

  • The registered place of business/office should be located in India.

Documents Required for Conversion Into Proprietorship to Limited Liability Partnership.

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  • Pan Card
  • Pan Card of all partners Foreign nationals may provide passport Partners Address proof.

  • Partner’s Address Proof
  • Aadhar Card/ Voter ID/ Passport/ Driving License of all partners.

  • Photograph
  • Latest Passport size photographs of all partners.

  • Business Address Proof
  • Electricity Bill/ Telephone Bill of the registered office address.

  • Noc From Owner
  • No Objection certificate to be obtained from the owner of registered office .

  • Rent agreement
  • Rent Agreement of the registered office Should be provided, if any.

  • NRI/ Foreign National
  • In case of NRI or Foreign National, documents of partners must be notarized or apostilled.

    *Please note that in case of foreign nationals as partners or NRIs, all the above documents should either be notarized or produced.

Procedure for Conversion of Proprietorship to Llp With Legaltax

  • Fill the form – The most important step requires you to fill some questionnaires and submit the required documents with consultation from our experts.
  • Application for DSC and DPIN - The next step is to apply for Digital Signature Certificate and DPIN for all the participants.
  • Application for Reservation of Name - The next essential step is to search for a suitable name, check whether it is available or not and apply for the name
  • Drafting and Filing of Incorporation Document – After carefully drafting the incorporation document, we will file for conversion of Sole Proprietorship to LLP. After this you will receive the Certificate of Incorporation.
  • Application for PAN and TAN - After the receipt of certificate of incorporation, the next step is to apply for PAN and TAN for LLP.
  • Drafting and Filing of LLP Agreement – The final step for conversion is putting the terms and clauses of operation and ownership in the draft LLP agreement and filing it with the Ministry of Corporate Affairs.
  • With our help this whole process can take up to 21 working days.

Frequently Asked Questions (FAQs)

Like all partnerships, registration requires two or more persons to be designated partners, with one partner being an Indian citizen. The registered place of business should be in India.

The process of conversion of Proprietorship into LLP will be filed with the concerned department as the registration in the name of Proprietorship firm cannot be amended. All registrations taken in the name of the Proprietorship, if not required for any other purpose, shall be surrendered.

The LLP Act, 2008 does not put any limitation in terms of citizenship or residency for becoming a partner. Foreign nationals including foreign companies and LLPs are allowed to incorporate LLP in India provided at least one of the designated partners is a resident of india. However, the person must be of 18 years of age or more i.e. Not a minor and must be competent to enter into a contract. Also, the proposed designated partner will have a DIN.

Yes, one can carry on more than one business under LLP, provided the businesses are related or of the same nature. Unrelated or of the same nature. Unrelated activities like fashion designing and accountancy cannot be done under the same LLP. The business activities are mentioned in the agreement and they must be approved by the ROC

Once a limited liability partnership is incorporated, it will comply with annual compliance requirements. If the LLP's capital contribution is less than ₹25 lakh or has a turnover of less than ₹40 lakh, there is no need to audit the financial statements. To know more details, please read our blog post “Compulsory Compliance for Limited Liability Partnership (LLP).

All the assets and liabilities of the owner immediately after the conversion become the assets and liabilities of the LLP. All movable and immovable assets of the owner automatically vest in the LLP. No capital gains tax will be levied on transfer of assets from Proprietorship Firm to LLP. The accumulated loss and unabsorbed depreciation of the Proprietorship firm is treated as loss/depreciation of the successor LLP for the previous year in which the conversion was affected.Thus, such loss can be carried over to the successor LLP for a further eight years.

While applying for name reservation, the trade name of the proprietorship can be applied for purchase as the name of the LLP. The Ministry may give the same name considering the fact that the ownership has been converted into an LLP, except where the name of the firm is already reserved by another company/LLP. Approval of name application is entirely at the discretion of MCA.

Yes, Foreign Direct Investment (FDI) is allowed in LLPs under the automatic route in sectors permitted by the Foreign Investment Promotion Board (FIPB). However, Foreign Institutional Investors (FLS) and Foreign Venture Capital Investors (FVCI) will not be allowed to invest in LLPs. LLPs will also not be allowed to take advantage of External Commercial Borrowings (ECB).

By converting sole proprietorship into a private limited company, one can enjoy advantages such as a separate legal entity, fewer liabilities as compared to Sole Proprietorship, tax benefits, unlimited reach to capital, less administrative burdens, and more market credibility.

Unlike the sole proprietorship, the limited liability partnership has a distinct legal personality. This means that the entity can sue or be sued, enter into contracts, and own property in its own name. An LLP has perpetual succession and does not cease to exist if one or more of its partners dies.

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