Convert a Proprietorship Firm to an LLP
Sole proprietorship is the easiest form of business which some small businesses and startups choose to start with. By doing any one of the registrations that is GST registration or Small Scale Industry registration sole proprietorship is good to kick off. This has some drawbacks like unlimited liability of the proprietor, yet businesses take this as another part of the risk in their entrepreneurship journey. As a business, it becomes difficult to manage and control all the business activities individually and sole proprietor chooses to convert it into another form of business structure.
LLP: The sole proprietor can also choose to convert his business into Limited liability partnership. LLP has many features like private limited company. Further, LLP enjoys tax benefits and less annual compliance. This all the assets, liabilities, goodwill and losses will be transferred as it is to limited liability partnership.
Registered FAQ
Can I convert my Sole Proprietorship Firm into LLP?
No, conversion of proprietorship firm into LLP is not possible. The proprietorship firm is an unregistered entity which cannot be converted into any other entity as it does not possess any separate identity that the owner.
What should I do to register a Limited Liability Partnership for the business of Sole Proprietor?
To continue the business of sole Proprietorship Firm as an LLP (Limited Liability Partnership), the procedure of Takeover of the said firm by LLP shall be followed.
How can I incorporate an LLP for takeover of Sole Proprietorship firm?
The procedure of Incorporation of LLP as prescribed in LLP Act, 2008 shall be followed including the procedure to effect the takeover of Proprietorship Firm.
Do I need to transfer my assets and liability to LLP after incorporation?
Once the LLP is incorporated, a clause of takeover of the business of Sole Proprietor shall be entered into the LLP Agreement.
5. What are the requirements to register an LLP for takeover of Sole Proprietorship Firm?
The DSC (Digital Signature Certificate) and DIN (Director Identification Number) of all Partners is required along with a business place to carry on the Business.
6. How many people are required for registration of LLP with intention of takeover of Proprietorship Firm?
Alike normal LLP, minimum 2 Designated Partners shall be appointed being individual where at least one shall be resident in India.
7. What is the capital required to register LLP for takeover the Sole Proprietorship Firm?
A Limited Liability Partnership can be started with any amount of capital contributed by the Partners of the LLP. The form of contribution can be tangible as well as intangible and in form of cash or otherwise.
8. What will be the amount capital introduced by Proprietor in the LLP?
The net-worth of the Assets and Liabilities of the proprietorship firm shall be valued at the market prices and shall be introduced as capital in the LLP.
9. What are the requirements to be a Partner or Designated Partner of the LLP?
There are no limitations in terms of citizenship or residency to be a Partner. Therefore, the LLP Act, 2008 allows Foreign Nationals including Foreign Companies & LLPs to incorporate a LLP in India provided at least one Designated Partner is resident of India. However, the person should be 18 or above i.e. not a minor and competent to enter into contract. Also, the proposed Designated Partner shall have DIN.
10.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 of takeover of the proprietorship firm except where the name of firm is already reserved by any other company/LLP. The approval of the name application is complete discretion of the MCA.
What are the documents required for takeover of Sole Proprietorship by LLP?
PAN card & Address proof of all the partners is required in addition to the registered office address proof. Further, the certificates of registration, if any were obtained in the name of Proprietorship shall be provided along with the latest financial statements and ITR.
Do I need to apply for fresh registration in the name of LLP or amend the registrations in the name of Proprietorship Firm?
The registrations in the name of Proprietorship Firm cannot be amended therefore fresh applications for the registration in the name of LLP shall be filed with concerned department. The registration in the name of Proprietorship, if not required for any other business then, it shall be surrendered.
What should be taken care in respect of LLP Agreement of the LLP?
Apart from necessary clauses and terms of the LLP, the fact of takeover shall be expressly provided in the LLP Agreement. Further, stamp duty on the agreement shall be paid as per the rates prescribed by the State Government.
How can I get the PAN and TAN in the name of LLP?
The application of PAN and TAN in the name of LLP shall be applied after the issuance of Certificate of Incorporation of LLP. The physical copy of the PAN will be received at the Registered Office only after being dispatched by the Income Tax Department.
What are the statutory compliances required for a Limited Liability Partnership?
An LLP shall comply with the annual compliance requirements after LLP Incorporation. However, if the LLP has a turnover of less than Rs.40 lakhs and/or has a capital contribution of less than Rs.25 lakhs, the financial statements do not have to be audited. Further, requirement of statutory audit shall be complied once crossing the prescribed Limit.
When the requirement of Audit for Limited Liability Partnership will arise?
The requirement of Mandatory Audit will be levied when the Turnover of the LLP exceeds Rs 40 Lakh or the contribution of Partners exceeds Rs 25 Lakh.
Whether an LLP can use the Trademark owned by proprietor?
The trademark owned by the proprietor during the procedure of takeover can be used by the newly registered LLP, as per the agreement of the Partners to LLP and LLP Agreement.
Will the trademark in the name of Proprietor will be automatically transferred to LLP?
The takeover will result into transfer of the trademark registered in the name of Proprietorship by way of books entry only.
