Seven Benefits of Converting A Partnership Firm Into LLP

A few years ago, a new type of company registration was brought into place by GoI (government of India). These companies were known as LLP (limited liability partnership). This blog proposes to explain some of the fundamental paybacks business owners would get by converting a partnership firm into the LLP (limited liability partnership) with the hope to make the decision smarter. 

It becomes pertinent to carry out an online partnership firm registration process in India before starting up as it help you stay compliant. There are plenty of business structure out there in the market from which you can choose the right one for your business as per your suitability, tax benefits and type of business such as OPC (one-person company), sole proprietorship, LLP (limited liability partnership), public/private limited company and so forth.

A few decades ago, businesses were generally owned by the same family members that worked together and reaped returns of their collective labor. The structure has altered with advancements in technical expertise, contacts, and resources, becoming critical business assets and partnerships formed with new business owners and people. A decade ago, a hybrid betwixt a company and partnership style of business came about names as an LLP (limited liability partnership).

Here are some of the benefits of converting a general partnership firm into an LLP 

1. Minimal risk exposure as partners will have limited liability.

Though the name of it, you can guess that the LLP (limited liability partnership) borrows the unique features of the company form of business of limited liability. What it means for the partners is that they cannot be individually held liable for attaining the debts of the firm. However, the financial obligation might be contracted or solicited by them. In such a way, individual assets such as jewellery, property, and other valuables belonging to the partner are ring-fenced from being sold to service debts of the firm.

2. Feasible to expand the business as there is no limit on the number of partners.

Traditional partnership requires a minimum of two and a maximum of 20 partners. Thus, the LLP (limited liability partnership) offers an unlimited number of partners and is a worthwhile option in business expansion, and multiple experts in varied fields might be required.

3. Governance, audit procedure and better investor confidence.

If the LLP (limited liability partnership) turnover goes beyond the stipulated limit of 25 lacs of contribution or turnover goes beyond Rs. Forty lacs in any financial year, it has to compulsory undergo an audit. The benefit of this is better governance, record-keeping, and management, which also makes it easier to apply for loans and licenses. Also, this energizes the confidence of the various shareholders in the entity and enhances the company’s creditworthiness and increases access to resources.

4. Stays in perpetual succession.  

Since the partnership is not treated as a separate entity, its existence relies on the partnership’s will (exemption in the case of a partnership limited by time). Nonetheless, the LLP (limited liability partnership) is considered as a separate legal entity having its own seal and perpetual succession, which means that the demise of the exit of one or more partners will have no impact on the continuity of the partnership.

5. No capital gain tax has to be paid on the conversion.

An LLP taxation includes MAT and that should be considered while converting the partnership firm into an LLP (limited liability partnership) as no capital gain tax has to be paid on the same.

6. You can carry forward the losses.

If there were any losses incurred during any year while the general partnership was in a state of work, which has not been set-off against gains in any year, then they become eligible for set-off under the new LLP accounts.

7. It would allow the merger and amalgamation.

Unlike the partnership firm, an LLP (limited liability partnership) has the legal capacity to merge with another LLP (limited liability partnership) or have an arrangement, compromise, or joint venture with another firm.

A hybrid combination of a partnership firm and a company style of business is known as an LLP (limited liability partnership) to wrap it up. The significant benefits of the LLP (limited liability partnership) have perfect for expanding the business, low amount of risk association, and the ability to undergo amalgamations and mergers easily, unlike the partnership company.