Are you a successful sole proprietor looking to scale your business, attract investors and safeguard your personal assets? The transfer of business from a proprietorship to a Limited Liability Partnership (LLP) is a strategic move that offers significant advantages. At Praman Advisors Private Limited, we specialize in making this transition seamless and compliant, ensuring your business is poised for future growth.
1. Overview:
A sole proprietorship, while easy to set up, comes with unlimited personal liability, meaning your personal assets are at risk in case of business debts or legal issues. It also lacks a separate legal identity, hindering growth and fundraising opportunities.
Conversion of an LLP transforms the business into a separate legal entity. It combines the flexibility of a partnership with the limited liability protection of a company. This hybrid structure is ideal for professionals, consultants and growing businesses that wish to collaborate with partners while enjoying legal distinctions and reduced personal risk.
Praman Advisors offers comprehensive assistance in this conversion, guiding you through every step to ensure a smooth and compliant transition.
2. Benefits of LLP Conversion:
The decision to convert your proprietorship to an LLP brings a multitude of benefits:-
- Limited Liability Protection: This is the most important advantage. Your personal assets are shielded from business debts and liabilities, limiting your financial risk to your capital contribution.
- Separate Legal Entity: The LLP has it’s own legal identity, distinct from it’s partners. This enhances credibility and allows the LLP to own assets, enter into contracts and sue or be sued in it’s own name.
- Enhanced Credibility and Brand Value: An LLP structure projects a professional and stable image to clients, vendors, investors and financial institutions, opening doors to new business opportunities and easier access to credit.
- Operational Flexibility: The LLP Agreement, drafted by the partners, governs the internal management and operations, offering significant flexibility in defining roles, responsibilities and profit-sharing ratios.
- Easier Access to Capital: LLPs are more attractive to banks and investors compared to proprietorships, simplifying access to loans, equity funding and venture capital for expansion.
- Perpetual Succession: Unlike a proprietorship that ceases to exist with the owner, an LLP has perpetual succession, ensuring business continuity regardless of changes in partners.
- Lower Compliance Burden (Compared to Private Limited Company): While requiring more compliance than a proprietorship, LLPs generally have fewer statutory compliance requirements than private limited companies, especially regarding audit requirements (audit is required only if turnover beyond ₹40 lakhs or contribution beyond ₹25 lakhs).
- Tax Benefits: LLPs are often taxed as pass-through entities, avoiding double taxation of profits.
3. Documents Required for Conversion:
To facilitate a smooth conversion from proprietorship to LLP, you will typically need the following documents:-
For all Proposed Partners:
- Passport-sized Photographs.
- PAN Card.
- ID Proof(Aadhaar Card, Voter ID, Driving License, Passport).
- Address Proof (Latest Bank Statement, Electricity Bill, Telephone Bill – not older than 02 months).
- Specimen Signatures.
For the Proprietorship Business:
- Latest Income Tax Return Acknowledgment.
- Proof of Business Continuity (e.g. contracts, invoices).
- Statement of Assets and Liabilities of the proprietorship, certified by a Chartered Accountant.
For the LLP Registered Office:
- Proof of Address (Electricity Bill, Water Bill or other utility bill – not older than 02 months).
- Rent Agreement (if rented).
- No Objection Certificate (NOC) from the landlord (if rented).
- Sale Deed/Property documents (if owned).
Other Documents:
- Digital Signature Certificates (DSC) for all designated partners.
- Designated Partner Identification Numbers (DPIN) for all designated partners.
- Proposed names for the LLP..
- LLP Agreement draft
Note: For foreign nationals or NRIs, all documents may need to be notarized and apostilled.
4. Process to Apply for Conversion:
Praman Advisors streamlines the conversion process into clear, manageable steps:-
- Preliminary Discussion & Documentation: Our experts will conduct an initial consultation to understand your business and gather all necessary documents, guiding you through the checklist.
- Obtain DSC & DPIN: We assist all proposed designated partners in obtaining their Digital Signature Certificates (DSC) and Designated Partner Identification Numbers (DPIN) which are mandatory for online filings.
- Name Reservation: We help you propose unique names for your LLP and apply for name approval with the Ministry of Corporate Affairs (MCA) through the RUN-LLP facility.
- Drafting LLP Agreement: Our legal team will draft a comprehensive LLP Agreement outlining the mutual rights, duties and obligations of partners including clauses for the transfer of assets and liabilities from the proprietorship.
- Filing Incorporation Documents: We prepare and file all necessary e-forms (like Form 17 for conversion) with the Registrar of Companies (RoC) along with the required attachments.
- Receipt of Incorporation Certificate: Upon successful verification and approval by the MCA, you will receive the Certificate of Incorporation, officially recognizing your LLP as a legal entity.
- PAN and TAN Application: Our team would facilitate the application for the new LLP's Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
- Post-Conversion Formalities: This includes transferring existing assets and liabilities of the proprietorship to the LLP, updating bank accounts, GST registration and other relevant licenses and registrations.
5. Fees and Timelines:
The fees for converting a proprietorship to an LLP can vary depending on factors like the number of partners, capital contribution and specific services required. Praman Advisors provides transparent fee structures with no hidden costs.
Typical Fee Components:
- Government Fees (for DSC, DPIN, Name Reservation, Filing Forms).
- Stamp Duty on LLP Agreement.
- Professional Fees of Praman Advisors for comprehensive consultation, documentation and filing.
Please contact us for a personalized quote:-
-
- Manju Laur: 📞 +97119 94042
Timeline: The entire conversion process typically takes 07 to 15 working days, subject to government approvals and the timely submission of all required documents by the client. Our efficient process and expert handling aim to minimize delays.
Frequently Asked Questions
A sole proprietorship cannot be directly converted as it has only one person. You will need to introduce at least one more partner to form an LLP. This often involves forming a partnership first, then converting it to an LLP or directly registering an LLP and transferring the proprietorship's business to it. Praman Advisors will guide you on the most suitable approach.
No, there is no minimum capital contribution required to form an LLP in India.
An audit is not mandatory for all LLPs. The audit is needed only if the annual turnover of the LLP is beyond ₹40 lakhs or the capital contribution beyond ₹25 lakhs in a particular financial year.
Existing contracts and agreements entered into by the proprietorship can be transferred to the LLP after conversion. However, it is advisable to review these contracts and obtain consent from the relevant parties, if necessary, to ensure a seamless transition.
While the transfer of a going concern from a proprietorship to an LLP can be exempt from certain taxes like GST under specific conditions, there might be other tax implications, such as capital gains on asset transfers. It is crucial to consult with a tax advisor or Praman Advisors' experts to understand the specific tax implications for your business.
Praman Advisors is a leading legal tech firm with extensive experience in corporate compliance and business registrations. We offer:
* Expert Guidance: The team of expert professionals to navigate complex regulations.
* Streamlined Process: User-friendly technology and simplified procedures for efficiency.
* Rapid Response: Timely support and swift query resolution.
* Tailored Solutions: Customized advice to meet your unique business needs.
* 100% Client Satisfaction: Our commitment to achieving complete client contentment.
