corporate law

Published on 10 April 2025

Converting Partnership Firms to LLPs in India: A Comprehensive Guide

Introduction

Converting a partnership firm into a Limited Liability Partnership (LLP) in India offers strategic advantages, including limited liability protection, perpetual succession, and operational flexibility. This guide outlines the current legal requirements, recent amendments, and practical steps for a smooth conversion, ensuring adherence to the Ministry of Corporate Affairs (MCA) regulations while optimizing for better online visibility.

Key Benefits of Converting to an LLP

  • Limited Liability Protection: Safeguards personal assets against business debts.
  • Separate Legal Entity: Ensures business continuity irrespective of changes in partners.
  • Perpetual Succession: LLPs maintain existence even when partners change.
  • Unlimited Partners: Unlike traditional partnership firms, LLPs can accommodate an unlimited number of partners.
  • Enhanced Credibility and Investment Opportunities: Facilitates attracting investors and partners.

Eligibility & Recent Amendments

  • Designated Partners Requirement: All existing partners must become designated partners during the conversion; no outside individuals are allowed at this stage.
  • Resident Designated Partner: As per the 2022 amendment, at least one designated partner must have resided in India for a minimum of 120 days in the fiscal year, down from the previous requirement of 182 days.
  • Digital Signature Certificate (DSC): All proposed designated partners must obtain a DSC for online form submissions.
  • Designated Partner Identification Number (DPIN): Each designated partner must apply for a DPIN through the MCA portal.
  • Consent of Partners and Secured Creditors: Written consent must be secured prior to conversion.
  • No Prior Registration Requirement: Unregistered partnership firms are eligible for conversion to LLP.
  • Updated Tax Regulations (effective April 1, 2025): New provisions include increased remuneration limits for partners and revised TDS rules under Section 194T.

Outdated or Incorrect Facts

  • Old Residency Requirement: The prior 182-day residency requirement has been reduced to 120 days.
  • Presumptive Taxation: Unlike partnership firms, LLPs are ineligible for the presumptive taxation scheme under Section 44AD.
  • Updated Partner Remuneration Limits: Remuneration limits for partners have doubled effective April 1, 2025.

Step-by-Step Conversion Procedure

  1. Obtain Digital Signature Certificates (DSC): Each partner must secure a valid DSC for e-filing.

  2. Apply for DPIN: Designated partners should apply for a DPIN through the MCA portal.

  3. Name Reservation: Utilize the RUN-LLP service on the MCA portal to propose two names; the approved name remains valid for 90 days.

  4. File Incorporation Forms:

    • Form FiLLiP: For LLP incorporation, including details on partners, registered office, and supporting documents.
    • Form 17: Application for conversion, requiring attachments such as:
      • Statement of partners
      • Certified statement of assets and liabilities (not older than 15 days)
      • List and consent of creditors
      • Latest Income Tax Return
      • Partnership deed
      • Consent of all partners
      • No Objection Certificate (NOC) from relevant authorities if applicable

  5. Issuance of Certificate of Incorporation (COI): Upon approval, the Registrar will issue the COI, marking the firm's transition to an LLP.

  6. Draft and File LLP Agreement: Execute this agreement on stamp paper and file it in Form 3 within 30 days of incorporation, asserting that the LLP is succeeding the partnership firm.

  7. Notify Registrar of Firms: Submit Form 14 within 15 days of conversion, including the COI and incorporation documents.

  8. Update Additional Registrations: Revise PAN, GST, bank accounts, and other statutory registrations to reflect the LLP's name. The existing PAN will remain unchanged.

  9. Communication Requirements: For 12 months post-conversion, all official communications must indicate:

    • The conversion date from a firm to LLP.
    • The name and registration number of the previous firm.

  10. Penalties for Non-Compliance: Failure to adhere to communication requirements may result in fines ranging from ₹10,000 to ₹1,00,000, plus continued daily penalties for ongoing defaults.

Recent Tax Amendments (Effective April 1, 2025)

  • Increased Remuneration Limits: For the first ₹6,00,000 of book profit (or loss), partners can receive ₹3,00,000 or 90% of book profit, whichever is greater; 60% applies to any profit above that.
  • Section 194T – TDS on Partner Payments: TDS is now mandatory on certain partner payments.

Additional Considerations

  • Licenses and Permits: Existing licenses do not automatically transfer to the new LLP; fresh applications are necessary following conversion.
  • Liabilities Prior to Conversion: Partners remain jointly and severally liable for obligations incurred before conversion, though the LLP is required to indemnify any partner fulfilling such liabilities.
  • Audit Requirements: LLPs only require an audit if turnover surpasses ₹40 lakh or capital contribution exceeds ₹25 lakh.
  • Loss Carry-Forward: LLPs are permitted to carry forward losses even if changes occur among partners, unlike traditional partnership firms.

Conclusion

Converting a partnership firm to an LLP can provide numerous advantages in terms of liability and operational flexibility. By following the outlined steps and adhering to legal requirements, businesses can successfully navigate this transition, ensuring compliance with the MCA while enhancing their potential for growth and investment opportunities.