Converting a Partnership Firm or Proprietorship into a PVT. LTD. or LLP

A Partnership Firm can convert directly into an LLP (under the LLP Act, 2008, using Form 17) or into a Private Limited Company (PVT. LTD.) (under section 366 of the Companies Act, 2013, using Form URC-1 with SPICe+). A Proprietorship has no direct conversion route: instead, you register a new PVT. LTD. or LLP and transfer the proprietorship business to it. Done correctly, the conversion into a company can be tax-neutral if the conditions of the income tax law are met.

Businesses usually convert when they grow: to protect the owners' personal assets with limited liability, to bring in investors, or to look more credible to large clients and lenders. This post explains each route, the conditions, and what to update afterwards.

Which conversion routes are available?

From	To	Law and main form	Direct conversion?
Partnership Firm	LLP	LLP Act, 2008 (section 55 and Second Schedule); Form 17 with FiLLiP	Yes
Partnership Firm	PVT. LTD.	Companies Act, 2013 (section 366); Form URC-1 with SPICe+	Yes
Proprietorship	PVT. LTD.	New company incorporated through SPICe+, then business transferred by agreement	No, takeover route
Proprietorship	LLP	New LLP incorporated through FiLLiP, then business transferred by agreement	No, takeover route

Both registered and unregistered Partnership Firms can use the direct routes.

How does a Partnership Firm convert into an LLP?

The key condition is that all the partners of the firm, and no one else, become the partners of the LLP. The broad steps are:

1. Get all partners' written consent and Digital Signature Certificates for the proposed designated partners.
2. Reserve the LLP name through RUN-LLP on the MCA portal.
3. File FiLLiP along with Form 17 (the application for conversion), attaching the firm's statement of assets and liabilities certified by a chartered accountant, the consent of partners, and any no-objection from creditors.
4. On approval, the Registrar issues a certificate of Registration. The firm's assets, liabilities, rights and contracts vest in the LLP, and the firm is treated as dissolved.
5. Within 15 days, inform the Registrar of Firms of the conversion (Form 14 is used for this intimation), and within 30 days file the LLP agreement in Form 3.

After conversion, the LLP has the yearly filings of any LLP: Form 11 by 30 May and Form 8 by 30 October, and an audit if turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh. See the LLP lessons.

How does a Partnership Firm convert into a PVT. LTD.?

Section 366 of the Companies Act, 2013 lets a firm register as a company. The broad steps are:

1. Pass a resolution and get consent of the partners to the conversion. Partners become the first shareholders and directors.
2. Obtain no-objection from secured creditors, where applicable.
3. Publish a notice of the proposed Registration in Form URC-2 in newspapers (in English and in the local language of the district) and wait for objections for at least 21 days.
4. File Form URC-1 along with SPICe+, the Memorandum and Articles, a statement of the firm's assets and liabilities and the required declarations.
5. On approval, the Certificate of Incorporation is issued and the firm's property vests in the company by law.

The company then has full company compliance, including INC-20A within 180 days of incorporation, an annual audit and ROC filings. See the PVT. LTD. lessons.

How is a Proprietorship moved into a PVT. LTD. or LLP?

Because a Proprietorship is not a separate legal entity, the law has no form to "convert" it. The usual approach is:

1. Incorporate a new PVT. LTD. (with the proprietor and at least one other person as shareholders and directors) or a new LLP (with the proprietor and at least one other partner).
2. Include in the company's objects, or the LLP agreement, the purpose of taking over the proprietorship business.
3. Sign a business transfer agreement under which the proprietor transfers the business, its assets and liabilities, usually in exchange for shares in the company or capital in the LLP.
4. Move bank accounts, contracts, employees and licences to the new entity, and close the proprietorship's Registrations once the transfer is complete.

Stamp duty on the transfer of assets, especially property, depends on your state and on how the transfer is documented, so take advice before signing.

Is the conversion taxable?

From 1 April 2026, the Income-tax Act, 2025 applies. Section 70 of the new Act (which replaced section 47 of the 1961 Act) lists transfers that are not treated as a "transfer" for capital gains, including conversion of a firm into a company and of a proprietorship into a company, if strict conditions are met. In broad terms:

• Firm to company: all assets and liabilities of the firm become the company's; all partners become shareholders in the same proportion as their capital accounts; partners receive nothing other than shares; and the former partners together hold at least 50% of the voting power for five years.
• Proprietorship to company: all business assets and liabilities become the company's; the proprietor receives nothing other than shares; and the proprietor holds at least 50% of the voting power for five years.

If a condition is broken later, the exemption can be withdrawn and the gain taxed. For conversion of a firm into an LLP, many practitioners treat it as tax-neutral because a firm and an LLP are taxed alike, but there is no single explicit exemption for every case, and moving a proprietorship into an LLP has no specific exemption. Get advice from a chartered accountant, and check the law on the Income Tax Department portal.

What must you update after converting?

• PAN and TAN: the new LLP or company gets its own PAN and TAN.
• GST Registration: the new entity needs its own GSTIN. Unused input tax credit can be transferred through Form ITC-02 on the GST portal, and the old Registration cancelled. See the GST Registration lessons.
• Bank accounts: open accounts in the new entity's name and close the old ones once payments have moved.
• Licences and Registrations: Udyam, Shops and Establishments, professional tax, import-export code, EPF and ESI, and any industry licences.
• Trademarks: record the new owner of registered trademarks with the Trade Marks Registry. See the Trademark Registration lessons.
• Contracts, invoices and letterheads: inform clients and suppliers and use the new name and identifiers.

Should you convert to an LLP or a PVT. LTD.?

Convert to an LLP if you want limited liability with lighter compliance and have no plans for equity investors. Convert to a PVT. LTD. if you plan to raise equity, give ESOPs or want the structure larger clients and investors prefer. For a detailed comparison, read PVT. LTD. vs LLP: tax, compliance and funding compared, and for small businesses, Proprietorship vs Partnership Firm vs LLP. The Life after Registration lessons cover the yearly filings that follow.

Key takeaways

• A Partnership Firm can convert directly into an LLP (Form 17) or a PVT. LTD. (section 366, Form URC-1).
• A Proprietorship cannot convert directly; a new PVT. LTD. or LLP takes over its business by agreement.
• Conversion into a company can be tax-neutral under section 70 of the Income-tax Act, 2025 if strict conditions, including a five-year 50% holding, are met.
• After converting, update PAN, GST Registration, bank accounts, licences, trademarks and contracts.
• Choose LLP for lighter compliance and PVT. LTD. for funding and growth.