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OneClick Business Solutions

Conversion of Sole Proprietorship to LLP

A Sole Proprietorship is known as a simple structure for starting journey of an entrepreneur, but it might make obstruction in future development. If you want to add partners in your business in order to facilitate advantages of various thoughts, but don't want enhanced disturbance concerning structure or cost, compliance, then it is recommended to switch to an LLP.

If you don't want to take liability for misconduct of another partner, lack of skill or negligence, you want to restrict your liabilities for the debt and losses then LLP might be the best option to go with. Switching to LLP can help you enjoying tax benefits.

Procedure for Conversion

1 – You need to submit your necessary documents to us for starting the conversion process.

2 – At One Click Business Solutions, we will assign dedicated and skilled resource to process your request for conversion.

3 - We will help you with preliminary documentation :

Determine availability and requirement of document

Preparing documents

The Incorporation documents must be signed by promoters

Submitting the signed documents to Registrar of Companies

4 - Your company name will be checked by us, application should be made for DSCs and DIN

5 - We will make application for Incorporation certification.

6 - We will make LLP Agreement, stamping it and filing it for Incorporation

7 – As soon as your LLP is registered, all the documents and DSCs will be sent to you

Note - Entire conversion procedure takes 25 to 30 days approximately and also depends upon documents offered by applicant and approval offered by the government

Stepwise conversion procedure of Proprietorship to LLP

Step No. Steps Approximate Time in working days
1

Preliminary Documentation Discussion between BMC Team and the Promoters of the Company :

Determine need and availability of document

Preparing for signed documents by BMC

Signing of the documents of Incorporation by Promoters

Sending the signed document by promoters to BMC

5
2

DSC (Digital Signature Certificate)

Obtaining DSC for any one of the Director for digital verification of the Incorporation documents

1
3

DIN (Director Identification Number)

Approved DIN is a pre-requisite for the process of incorporation

1
4

Preparing main object and name availability search

Preparing main object by BMC

The promoters need to offer at least 6 (Six) names according to their priority

Making an online search for availability of names as desired by the Promoters

Affirmation of the draft main object and the final name

3
5

Application for Name Availability

Filing of Form 1A with the associated ROC

5
6

Incorporation Process

After getting approval of ROC for name of the Company, filing complete documents of Incorporation with the ROC

e-Forms should be uploaded online

Payment of Registration fees

Getting incorporation certificate

5
7

Post-Incorporation Process :

Make LLP Agreement by BMC

Affirmation of LLP Agreement by the Promoters

Stamping of LLP Agreement

Filing of Form 3

5

Advantages of Limited Liability Partnership (LLP)

LLPs continue their existence even after the death of the Partner

Protects personal assets from business liability

More flexible management structure

Separate the business from personal money

No audit where capital contribution is below 25 lac

No audit by a chartered account if turnover is below Rs. 40 Lac

Important benefits for the conversion of Proprietorship into LLP

Automatic transfer - Complete assets and liabilities of the firm will be transferred to the LLP immediately before the conversion.

No Stamp Duty - All movable and immovable properties of the firm will be included in the LLP automatically. There is no need of any instrument for transfer and therefore no stamp duty is needed to be paid.

There is no Capital Gain Tax - Capital Gains tax shall not be charged while transferring property from proprietorship firm to LLP.

Furtherance of Brand Value - Brand value and goodwill of the firm is kept unchanged and it is incorporated to get benefit from previous success story with legal acknowledgment.

Carry forward and start out losses and unabsorbed depreciation - Accumulated loss and unabsorbed depreciation of firm is considered depreciation/loss of the successor LLP for the previous year in which conversion took place. Therefore such loss can be passed for more eight years in the hands of the successor LLP.

Criteria of Conversion

At least 2 Shareholders is required for LLP Registration

Minimum 2 Directors are essential

DIN is compulsory for all Directors

Documents needed

Passport size photograph of Directors

Copy of PAN Card of the Directors

No Objection Certificate from Landlord (Specified format will be given)

Copy of Property papers (in the case of owned property)

Copy of Rent agreement (in the case of rented property)

Copy of Voter identity card/ Aadhaar Card

Electricity/ Water bill of the Business Place

Frequently Asked Questions

Ques: Can I convert my sole proprietorship business to LLP?

No, conversion of proprietorship firm into LLP is not possible. The proprietorship firm is an unregistered unit that cannot be converted into any other unit since it does not include any distinct identity that the owner.

Ques: What I need to perform to incorporate a Limited Liability Partnership for the business of Sole Proprietor?

To run the business of sole Proprietorship Firm as an LLP (Limited Liability Partnership), the process of Takeover of the firm by LLP needs to be followed.

Ques: How can I complete incorporation of an LLP for takeover of Sole Proprietorship firm?

The process of incorporation of LLP as mentioned in LLP Act, 2008 must be followed along with the process to perform the takeover of proprietorship firm.

Ques: Is it compulsory to transfer my assets and liability to LLP after incorporation?

Once the LLP is incorporated, a clause for takeover of the business of sole proprietor needs to be entered into the LLP Agreement.

Ques: What are the needs for registering an LLP for takeover of Sole Proprietorship Firm?

It is necessary to get the DSC (Digital Signature Certificate) and DIN (Director Identification Number) of all Partners with a business place to run the Business.

Ques: What is the number of people required for registration of LLP for completing takeover of Proprietorship Firm?

Like normal LLP, at least 2 nominated partners shall be appointed being individual where minimum 1 must be resident in India.

Ques: What is the capital needed for registering LLP for performing takeover the sole proprietorship firm?

Any amount of capital given by the partners of the LLP can be used to start a limited liability partnership. The contribution can be tangible and intangible and in type of cash or otherwise.

Ques: What will be the amount of capital initiated by proprietor in the LLP?

The net-value of the assets and liabilities of the proprietorship firm needs to be valued at the market prices and shall be initiated as capital in the LLP..

Ques: What are the needs to be a partner or designated partner of the LLP?

There are no limitations regarding citizenship or residency to be a partner. Thus, the LLP Act, 2008 lets foreign nationals as well as foreign companies & LLPs to incorporate a LLP in India on condition that minimum 1 nominated partner is resident of India. However, the person should be 18 or above i.e. not a minor and capable to enter into contract. Also, the proposed selected partner must have DIN.

Ques: Can my trade name of Proprietorship be used as LLP?

While filing an application for reservation of name, the trade name of the proprietorship can be applied to obtain as the name of LLP. Ministry may approve the same name in view of the fact of takeover of the proprietorship firm apart from where the name of firm is previously reserved by any other company/LLP. The approval of the application of name is complete judgment of the MCA.

Ques: What documents are needed to perform takeover of sole proprietorship by LLP?

PAN card and address proof of all the partners is needed besides the registered office address proof. Besides, the certificates of registration, if any were acquired in the name of proprietorship shall be offered with the latest financial statements and ITR.

Ques: Do I require applying for fresh registration in the name of LLP or modify the registration in the name of proprietorship firm?

The registrations in the name of Proprietorship Firm cannot be modified therefore fresh applications for the registration in the name of LLP should be filed with associated department. The registration in the name of Proprietorship, if not needed for any other business then, it must be surrendered.

Ques: What is important regarding LLP Agreement of the LLP?

Excluding essential clauses and terms of the LLP, the fact of takeover shall be particularly offered in the LLP Agreement. Besides, stamp duty on the agreement must be paid according to the rates recommended by the State Government.

Ques: How PAN and TAN can be obtained in the name of LLP?

The application of PAN and TAN in the name of LLP must be applied after issuing Certificate of Incorporation of LLP. The copy of the PAN will be taken at the Registered Office only after being shipped by the Income Tax Department.

Ques: What are the statutory compliances needed for a Limited Liability Partnership?

An LLP shall fulfil the annual compliance needs after incorporation of LLP. Though, 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 is not to be audited. Besides, necessity of statutory audit must be complied once crossing the recommended Limit.

Ques: When the need of Audit for Limited Liability Partnership will take place?

The necessity of compulsory audit will be imposed while the turnover of the LLP is more than Rs 40 Lakh or the contribution of partners is more than Rs 25 Lakh.

Ques: Whether the trademark owned by proprietor can be used by an LLP?

The trademark possessed by the proprietor during the process of takeover can be used by the newly incorporated LLP, according to the agreement of the Partners to LLP and LLP Agreement.

Ques: Will the trademark in the name of owner be transferred to LLP automatically?

The takeover will take place into transfer of the trademark incorporated in the name of Proprietorship by means of books entry only. The process of transfer (assignment of trademark) as recommended by the trademark ministry must be followed.



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