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Every business structure has its own benefits, and while a partnership is easy to manage a business, it does keep its partners at risk by exposing their personal assets to liability. LLP, a newly introduced concept, provides limited liability protection for the partners, separate legal entity status, ability to take on an unlimited number of partners and ease of ownership transfer. Conversion of a Partnership to Limited Liability provides you most benefits a private limited company enjoys while keeping compliances low, and is a go-to option for Small and Medium size businesses. Our counsels help you transfer your assets, plan your structure and help in legal and financial transitions.
The partners of the LLP should be the same as the original Partnership.
A Limited Liability Partnership (LLP) can prove to be a much better business vehicle than a regular partnership. Partnerships are affected by personal liabilities, and LLPs remove excessive regulations of the Indian Partnership Act, 1932. Furthermore, there are tax benefits, no audit requirements below a certain capital, no cap with regard to a number of partners or capital contribution requirements.
The LLP formed cannot have new or less Partners than the Partnership. So, if any Partners are to be added to the LLP, the Partnership should first be converted into a LLP and then Partners must be added. On the other hand, if Partners are to be removed, it is best to remove them prior to starting the process for conversion.
With regard to the changes in FDI regulations, foreign investors are now permitted to have 100% FDI automatically. The 100% FDI in LLP is granted to foreign companies who operate in activities or sectors where 100% FDI is considered permissible through automatic route. Also, there should not be any performance prerequisites that are linked to FDI. A definite interpretation of the terms such as ‘ internal accruals’ and ‘ownership and control’ has been provided with reference to the LLP. Thus, Foreign investment is made smoother and quicker with FDI in LLP.
Licenses, approvals, permits or registrations issued to the Partnership will not be transferred automatically to the LLP. LLP must approach the concerned authorities and take steps as prescribed to transfer the assets to the LLP.
Once the Partnership is converted into a LLP, the Partnership firm is deemed to be dissolved and the name of the partnership firm is removed from the register of Registrar of Firms. The assets, liabilities, rights, privileges, obligations of the Partnership firm is considered to be wholly transferred to the LLP and the conversion doesn’t affect any existing contracts, employment, agreement, etc.