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Conversion of Sole Proprietorship to LLP
Should choose to register with the LLP
As eventually as business income increases, several sole proprietors are becoming aware of the need to differentiate their accounts and tax filings from those of the business.
There are several other reasons why the conversion of your sole proprietorship into an LLP is a smart decision. This conversion allows you to take advantage of the dual benefits of keeping your goodwill and brand value in close contact while enjoying perpetual structure. Other key benefits include the following:
- Expanding business
- Improved funding options
- Greater visibility and acceptance of the public
- Protection of assets
- Risk management
- Corporate Tax Profit
Documents are required for LLP conversion
Well, at a later stage, there are procedures to convert the Sole proprietorship business into a company or an LLP. Documents are required for LLP conversion are as follows:
- Latest photographs of all partners in the passport size;
- Aadhaar Card/Passport/Driving License/Voter ID: proof of identity of each partner;
- Each partner’s proof of residence: bank statement/passbook/electricity bill/telephone bill/service bill;
- All Partners PAN Card;
- Evidence of the proposed registered office-Electricity Bill along with proof of possession of the proposed registered office of the Rent Agreement OR;
- Subscribers paper, including each partner’s consent;
- Partners’ interest in other entities;
- Copy of BR (if Body Corporate is a Partner) (the name and address of the person nominated to act on his behalf as the nominee/designated partner shall also be indicated).
Steps involved in the conversion of a Sole proprietorship into an LLP
- DSC (Digital Signature Certificate)-
DSC is required and must be obtained by the designated LLP partners. The documents which are required to be submitted contain Identity Proof & Address Proof to receive this DSC.
- Apply for DPIN (Designated Partner Identification Number)-
The conversion phase is a prerequisite for DPIN. This specific DPIN number should be processed or approved by the appointed partners and they should obtain a provisional DPIN. Partners should provide photos, proof of identity, and proof of address to obtain the DPIN.
- Application for name availability–
The application to convert the business as an LLP is expected to be completed in the FORM-1 for the organization’s availability of a name. A maximum of 6 names in the order of priority may be suggested by the partner, and the application must then be sent to the respective ROC for approval of the name.
- Changes if any suggested by the ROC–
If the ROC suggests any change in the name application, it must be complied with and if the ROC finds that the name is not suitable for the business, he/she will reject the name.
- Documents required–
Several documents must be submitted to the ROC. The MOA or AOA must be submitted immediately after the designated partners have verified it and must be sent for the purpose of printing. A Stamping is also needed for multiple Document such as:
- Agreement LLP
- Forms 3
- The promoters’ signed subscription sheet
- LLP Agreement Duly Stamped
- Evidence of Registered Office Address
- Other forms required: Other forms must be filed along with the ROC, such as Form 32 and letter of Authority or POA.
- Final procedure:
You must follow up with the ROC and make the required changes to the MOA or AOA or other stated documents as given priority by the ROC to fill in all of the above mandatory documents with the ROC. Below are the mandatory steps to be taken,
- Upload the forms–The MCA platform must upload all the accurately completed forms. An online service is available for the forms.
- Fee payment– For the incorporation process, the fees must be charged.
- Collecting the Incorporation Certificate– after the ROC is satisfied that all the required steps have been properly followed and no errors have occurred during the initial to the final process, he/she will provide the Company with the Incorporation Certificate.
- The Automated Switch
All the firm’s assets and liabilities become the LLP’s assets and liabilities immediately before the conversion.
- No Tax on Stamps
All the company’s movable and immovable assets are deposited automatically in the LLP. No transfer instrument is required to be executed, and no stamp duty is therefore required to be paid.
- No Tax on capital gains
No tax on capital gains is imposed on the transfer of assets from the Sole Proprietorship business to the LLP.
- Carry forward/Set-Off
The business’s cumulative loss and unabsorbed depreciation is known to be the loss/depreciation of the LLP successor for the previous year in which the conversion was carried out. This failure can also be taken into the possession of the successor LLP for an additional eight years.
- Expansion of business
You will have more opportunities for business expansion after Conversion into LLP from Sole Proprietorship.
- Management skills:
Can have better management skills to effectively run the business as by converting Sole Proprietorship to LLP, because more than one person will operate the business with designated partners skills and mutual terms/agreement
However, the procedures to convert a proprietorship business into a Company or LLP are cumbersome, expensive, and time-consuming. Therefore, it is wise for many entrepreneurs to consider and start an LLP or Company instead of a Proprietorship.
RJA will understand your business requirements and help you start a Proprietorship by obtaining the relevant registrations. We will help obtain the necessary registrations to help the Proprietor open a bank account in the name of the business, thereby proving an identity for the business.
Rajput Jain & Associates can help startup a Proprietorship in 4 to 7 days, subject to Government processing time. Since the proprietorship is itself not distinguishable from its owner hence there is no registration or approval is required to start a proprietorship business.
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