Convert Partnership Firm to LLP

No. Schedule II of the LLP Act, 2008 applies only to firms registered under the Indian Partnership Act, 1932. A firm that has not been registered with the Registrar of Firms in the relevant state is not eligible for statutory conversion. Such a firm would need to first register under the Indian Partnership Act or alternatively dissolve the firm and incorporate a fresh LLP, which does not carry forward the firm's legal identity.

Section 47(xiiib) of the Income Tax Act, 1961 provides that the conversion of a firm to an LLP is not treated as a transfer and therefore does not attract capital gains tax in the hands of the firm or its partners, subject to conditions. These conditions require that all assets and liabilities of the firm become those of the LLP, no consideration other than a share in profits is given to any partner, the partners' profit-sharing ratio in the LLP is the same as in the firm, and the LLP does not convert to a company within three years of conversion.

No. A Limited Liability Partnership is a separate legal entity and must obtain a new PAN in its own name. The firm's PAN ceases to be valid after dissolution. The LLP must apply for a new PAN using Form 49A and submit it with the Certificate of Incorporation. It is important to update the new PAN with all banks, GST authorities, and other counterparties promptly to avoid TDS and payment processing issues.

Under most state stamp duty laws, the vesting of immovable property from a firm to an LLP upon conversion under Schedule II of the LLP Act is not treated as a conveyance or transfer and therefore does not attract stamp duty. However, stamp duty laws are state-specific, and a few states may impose nominal duties or require a declaration to be filed. It is advisable to verify the position with the state stamp authority before conversion if the firm holds significant immovable property.

The bank account of the firm should ideally be converted to an LLP account by submitting the Certificate of Incorporation and the LLP Agreement to the bank. However, banks typically prefer to close the old account and open a new current account in the LLP's name. For loans, the lender's consent must be obtained for the change of borrower from the firm to the LLP, as the conversion does not automatically bind third parties to treat the LLP as the borrower under existing loan agreements without their agreement.

An LLP must file Form 11 (annual return) within 60 days of the close of the financial year, which for Indian LLPs is 30 May each year. It must also file Form 8 (statement of accounts and solvency) within 30 days from the end of six months of the financial year, that is by 30 October. LLPs with a turnover exceeding 40 lakh rupees or capital contribution exceeding 25 lakh rupees must get their accounts audited by a chartered accountant. Failure to file attracts a penalty of Rs 100 per day per form with no upper cap.

Form 9 is the consent to act as a designated partner in the LLP. Every person who is to be appointed as a designated partner of the LLP must sign Form 9 before or at the time of filing the incorporation documents. The form declares that the person is not disqualified from being a designated partner under the LLP Act and that they consent to act in that capacity. It is a mandatory document that must be attached to Form 2 at the time of filing.

It is advisable to resolve all partnership disputes and exits before initiating the conversion process. All partners of the firm at the date of conversion must be included as partners or designated partners of the LLP. If a partner wishes to exit, their retirement and the corresponding changes to the partnership deed should be completed and registered with the Registrar of Firms before the conversion filing is made. Attempting to convert with a disputed partnership structure can lead to rejection of the application by the Registrar of Companies.

Upon submission of complete and correctly filled Forms 17 and 2 along with all supporting documents, the Registrar of Companies typically takes 10 to 15 working days to review the application and issue the Certificate of Incorporation. Defects in the filing, missing documents, or name objections can extend this timeline. Once the Certificate of Incorporation is issued, the conversion is complete and the firm is deemed dissolved.