Conversion of a sole proprietorship firm into a limited liability partnership (LLP) is a good option for anyone who wishes to expand his/her small and medium scale enterprise. As it has only one person, a sole proprietorship cannot be directly converted into a LLP. It can be either done by closing the proprietorship and registering an LLP or by including another person in the business and making him a partner and then converting it to an LLP.
Steps to incorporate an LLP
Application for DIN or DPIN: The Designated Partner Identification Number (DPIN), which the two proposed designated partners must apply for, requires the following: passport-sized photograph, a scanned copy of either the telephone bill, driver’s license or previous two months bank statement, soft copy of the PAN card and a completely filled form. If the partner is a non-resident Indian, then a copy of the passport will replace the PAN card. The passport copy and address proof should be notarised by the Indian embassy, a foreign public notary or company secretary in full-time employment.
Acquire/register DSC: With the DPIN, you can apply for the DSC for the two designated partners. The documents you need to submit for this are the same as those you need for DIN 1, along with the e-form.
LLP Incorporation: Form 1 is to be filled for name confirmation and Form 2 should be filled for incorporating an LLP after the name is confirmed.
File LLP Agreement: After the incorporation of the LLP, an initial LLP agreement is to be filed within 30 days of incorporation of LLP.
Benefits of converting Proprietorship into LLP
Automatic Transfer: All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the LLP.
No Stamp Duty: All movable and immovable properties of the firm automatically vest in the LLP. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.
No Capital Gains Tax: No capital gains tax shall be charged on transfer of property from the firm to the LLP.
Continuation of Brand Value: The goodwill of the firm and its brand value is kept intact and continues to enjoy the previous success story with legal recognition.
Carry Forward/Set Off: The accumulated loss and unabsorbed depreciation of firm is deemed to be loss/depreciation of the successor LLP for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor LLP.