Proprietorship to LLP


BV Acharya 45 - Proprietorship to LLP

Convert proprietorship to LLP to leverage on added benefits with limited liability

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Change from Proprietorship to LLP

Limited liability partnership in India was introduced through the LLP Act, 2008. the essential concept behind adopting LLP was to supply a structure that’s easy to take care of and reduces the liability as compared to a sole proprietorship structure. LLP combines the benefits of both the corporate and Partnership firm into one sort of organization and offers a hybrid structure. Hence, conversion of sole proprietorship into LLP may be a good business decision. Under LLP, one partner isn’t responsible or responsible for another partner’s misconduct or negligence. LLP also provides indebtedness protection for the owners from the debts of the LLP. Therefore, LLP is preferred mostly by Professionals, Micro and little businesses that are family-owned or closely-held.

Benefits of conversion from proprietorship to LLP

  • Separate Legal Existence: Limited liability partnership may be a separate legal entity, and its existence is break away its partners, unlike the overall partnership firm. This makes it possible to have assets and enter into contracts within the name of the LLP or sue a 3rd party just in case of any dispute.
  • Limited Liability of Owners: The liability of Partners is restricted to the extent of capital contribution agreed by the partners within the LLP Agreement. The loss or debt of LLP can’t be assigned to partners even while the dissolution of LLP. Further, one partner isn’t held liable for the actions of negligence or misconduct of the other partner.
  • Flexibility to Operate: The LLP is managed and run consistent with the LLP agreement. It’s the partners that decide how the LLP would function and divide the duties and responsibilities. Hence, it’s a really flexible structure and therefore the partners are liberal to create their own rules of management which isn’t possible in other business structures.
  • Lower Compliance Requirement: Compared to a personal Company, there’s a lower compliance requirement just in case of LLP, including the audit requirement. the need of statutory audit arises on reaching a particular level of turnover or contribution. Further, provisions like the meeting of partners, operation through resolutions are relaxed and not mandatory in every case.

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