Conversion of sole proprietorship firm into an LLP
Conversion of a sole proprietorship firm into 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.
PROCESS 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 notarized by the Indian embassy, a foreign public notary or company secretary in full-time employment.
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
All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the LLP.
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 shall be charged on transfer of property from the firm to the LLP.
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.
How to Conversion of sole proprietorship firm into an LLP
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Documents Required For Conversion of Private Limited Company into LLP
- PAN CardPAN Card of all partners
- Partner’s Address ProofAadhar Card/ Voter ID/ Passport/ Driving License of all partners
- PhotographLatest Passport size photograph of all partners
- Business Address ProofElectricity Bill/ Telephone Bill of the registered office address
- NOC from ownerNo Objection Certificate to be obtained from the owner of registered office
- Rent AgreementRent Agreement of the registered office should be provided, if any
Following registered persons not required to file GSTR 1, 2 and 3 such as:
Goods and Services Tax (GST) is an indirect tax applicable on the supply of goods and services. It is a comprehensive, multistage, destination based tax. It has subsumed almost all the indirect taxes except a few state taxes. It is collected from point of consumption and not point of origin like previous taxes.
Documents attach in trademark application:-
A trademark can be registered by the Controller General of Patents Designs and Trademarks, Ministry of Commerce and Industry, Government of India under Trademark Act, 1999 to protect the identity of any goods and services.
Some basic information about Income tax
An income tax is a tax imposed on individuals or entities commonly known as taxpayers that varies with respective income or profits. Income tax generally is computed on taxable income which is calculated after various deductions. Taxation rates may vary by type or characteristics of the taxpayer.
Frequently asked questions on Conversion of Partnership Firm into Limited Liability Partnership
1. Can proprietor be changed?
Ans. A change in proprietorship occurs when there is a change in the entity which owns and operates the business. It is synonymous with change in ownership, or it may be due to a change of entity type (for example a change from sole proprietor to LLC; from a partnership to a corporation, etc.).
2. What are 3 disadvantages of sole proprietorship ?
Ans. Disadvantages and Hidden Costs of the Sole Proprietorship
- Unlimited personal liability. This means you are personally liable for all debts of the company. …
- Difficulty in raising investment capital. …
- Difficulty in getting a business loan or line of credit. …
- No business write-offs
3. What are five advantages of sole proprietorship ?
Ans. Advantages of sole trading include that:
- you’re the boss.
- you keep all the profits.
- start-up costs are low.
- you have maximum privacy.
- establishing and operating your business is simple.
- it’s easy to change your legal structure later if circumstances change.
- You can easily wind up your business.
4. What are the merits of sole proprietorship?
- Ease of formation and dissolution: The sole proprietorship is the simplest form of business ownership
- Simplicity of operation and flexible management
- Sole claim on profits
- Favorable credit standing
- Preferential treatment by Government
- Social usefulness
- Tax advantage
5. Can proprietor be changed in GST?
Ans As GST is PAN based registration number you actually can‘t change the proprietorship of a business if it is Proprietary Firm (Sole Owner). If you are talking about partnership or private limited company, the firm has its own PAN number apart from members.
6. Can a proprietor have two firms under GST?
Ans. As a sole proprietor, all incomes will be clubbed together for Income Tax purposes and for determining the turnover limits under GST. However, if two firms are operated under different trade names i.e. A Marbles and A General Stores, you would need to apply for separate GST numbers.
7. What should be the date of LLP agreement?
Ans. Date of the agreement and parties of agreement. After incorporation, the LLP agreement is to be executed within 30 days as per the LLP Act. LLP agreement is between partners of LLP which can either be LLP or individual partner.
8. What are the compliances for LLP?
Ans. It is mandatory for a LLP to file a return irrespective of whether it has done any business. There are three mandatory compliance requirements to be followed by LLPs.
- Filing Annual Accounts
- or Statement of Accounts
- P&L and Balance Sheet.
9. Do you want to start an Indian LLP?
- Step 1 : Application for DIN or DPIN. All designated partners of the proposed LLP shall obtain “Designated Partner Identification Number (DPIN)”. …
- Step 2 : Acquire/ Register DSC. …
- Step 3 : New User Registration. …
- Step 4 : Incorporate a LLP. …
- Step 5 : File LLP Agreement.
10. What is the minimum capital required for LLP?
Ans. There is no minimum capital requirement in LLP. An LLP can be formed with the least possible capital. Moreover, the contribution of a partner can consist of tangible, movable or immovable or intangible property or other benefits to the LLP.
11. Is audit applicable to LLP?
Ans. The accounts of every LLP shall be audited in accordance with Rule 24 of LLP, Rules 2009. Such rules, inter-alia, provides that any LLP, whose turnover does not exceed, in any financial year, forty lakh rupees, or whose contribution does not exceed twenty five lakh rupees, is not required to get its accounts audited.
12. What are the contents of LLP agreement?
Ans. Contents of LLP Agreement
Firstly, it contains the name of the limited liability partnership firm. According to the Act, the name must always end with LLP. It also contains the date of the agreement. The act states that the agreement must be registered within 30 days after incorporation. Contents of LLP Agreement Firstly, it contains the name of the limited liability partnership firm. According to the Act, the name must always end with LLP. It also contains the date of the agreement. The act states that the agreement must be registered within 30 days after incorporation.
13. Can LLP have directors?
Ans. There are no shares, shareholders or directors in an LLP. … LLPs do not pay corporation tax – each LLP member is taxed through Self Assessment as a self-employed individual.
14. Can LLP accept deposits?
Ans. Whether Private Limited Company can accept loan from LLP. As loan from LLP shall be considered as deposit. Private Limited Companies can‘t accept Deposit.
Basic Features to Read before starting private limited company
Private company is required to add the word “Private limited” or “Pvt. Ltd.” to end of its name. Private company should have at least two member and two directors. Private company have right to issue debentures to any number of persons.
Features of Public Limited Company
MCA provides the facility for incorporation of public limited company. For incorporation, firstly apply for name through RUN (Reserve Unique Name) on MCA portal. After availability of name from ROC we should file incorporation form i.e. Spice 32, INC 33(for eMOA), INC 34(for eAOA), .