Closure of LLP

Closure of LLP or LLP Wind up process require surrender of various other statutory registration such as PAN, TAN, GST, PF or any other statutory registration taken by the LLP.

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Comprehensive Guide on Closure or Winding Up of LLP in India

1. Introduction

A Limited Liability Partnership (LLP) incorporated under the LLP Act, 2008 and registered with the Registrar of Companies (RoC) must comply with the relevant provisions and rules. However, there are circumstances where an LLP may need to be closed due to various reasons such as non-operation, financial losses, or regulatory compliance issues.

2. Common Reasons for Closure of LLP

Several situations can lead to the winding up of an LLP, including:

2.1 Non-Commencement of Business

If an LLP is incorporated but does not commence business within one year, it may opt for closure to avoid compliance burdens.

2.2 Fulfillment of Business Objective

LLPs incorporated for a specific project or purpose may dissolve after achieving their intended objective.

2.3 Continuous Business Losses

If an LLP incurs sustained losses and cannot maintain profitability, partners may decide to shut down operations.

2.4 Death or Exit of Partners

If all or most partners exit or pass away, and no new partners wish to continue, the LLP may close.

2.5 Insolvency or Inability to Pay Debts

If an LLP is unable to meet its financial obligations, it may be compulsorily wound up by a tribunal or voluntarily dissolved.

2.6 Regulatory Non-Compliance

Failure to comply with annual filings, tax obligations, and other statutory requirements can lead to penalties and force closure.

2.7 Engaging in Fraudulent Activities

If an LLP is found guilty of fraud, misrepresentation, or unlawful activities, authorities may initiate winding-up proceedings.

3. Methods of Winding Up an LLP

An LLP can be wound up through voluntary closure or compulsory winding up by an order of the tribunal.

3.1 Voluntary Closure of LLP

A voluntary closure is initiated by the partners when they decide to shut down the business. The steps include:

Passing a Resolution – A resolution must be passed by all designated partners for voluntary winding up.
Settling Liabilities – All outstanding debts and liabilities must be cleared before filing for closure.
Obtaining Consent from Creditors – If the LLP has creditors, their approval is required for voluntary closure.
Filing of E-Form 24 –

- The LLP must file Form 24 under Rule 37 of LLP Rules, 2008 to strike off its name from the register.
- Required documents include:

i. Statement of accounts certified by a Chartered Accountant (CA)

ii. Copy of LLP agreement

iii. Affidavits and indemnity bonds signed by all partners

iv. Copy of the resolution for winding up

Registrar’s Approval – Upon successful verification, the RoC will strike off the LLP’s name and notify the closure.

3.2 Compulsory Winding Up by Tribunal

An LLP may be forced to close by the National Company Law Tribunal (NCLT) under the following circumstances:

LLP is unable to pay debts.
LLP has engaged in fraudulent activities.
LLP is conducting business in a manner prejudicial to public interest.
LLP fails to file financial statements and annual returns for five consecutive years.

Procedure:

Filing a Petition – The petition for winding up can be filed by the LLP itself, creditors, or the Registrar.
Issuance of Public Notice – A notice is issued to creditors, employees, and stakeholders for objections.
Appointment of Liquidator – A liquidator is appointed to manage asset distribution and debt clearance.
Final Order by Tribunal – Upon completion of the process, the tribunal issues an order to dissolve the LLP.

4. Impact of LLP Closure

The LLP ceases to exist as a legal entity.
Partners are no longer liable for compliance or tax filings.
The LLP’s bank accounts must be closed, and its PAN must be surrendered.

5. Conclusion

Closing an LLP is a crucial decision that requires legal and financial diligence. Whether opting for voluntary closure through Form 24 or facing compulsory winding up by the tribunal, following due process is essential to avoid legal complications.

By adhering to the above compliance requirements, avoid penalties, and maintain good legal standing. For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091 to ensure all statutory obligations are met on time.

6. Additional Resources

For further reading, explore the following topics:

Frequently Asked Questions (FAQs) on Closure or Winding Up of an LLP

General Information about LLP Closure

1. What is the difference between “closure” and “winding up” of an LLP?

While the terms are sometimes used interchangeably, “winding up” is the more formal legal process for dissolving an LLP. “Closure” often refers to the practical cessation of business operations, but the formal legal dissolution requires the winding-up process.

2. Why would an LLP be closed or wound up?

Reasons for closure or winding up include: The LLP’s business is no longer viable or profitable. The purpose for which the LLP was formed has been achieved or is no longer relevant. Disagreements or disputes among the partners. Expiry of the term of the LLP (if any). Other reasons as specified in the LLP agreement.

Winding Up of an LLP

3. What are the different modes of winding up an LLP?

An LLP can be wound up either: Voluntarily: By the partners themselves. Compulsorily: By an order of the National Company Law Tribunal (NCLT).

4. What is the process for voluntary winding up of an LLP?

The process generally involves: Passing a resolution for winding up by a majority of the partners. Filing a notice of the resolution with the Registrar of Companies (ROC). Preparing an inventory of assets and liabilities. Realizing the assets and settling the liabilities. Preparing the final accounts. Filing the final winding-up return with the ROC. The ROC issuing an order of dissolution.

5. What is the process for compulsory winding up of an LLP?

The process generally involves: Filing a petition with the NCLT by a creditor, partner, or the Central Government. The NCLT hearing the petition and, if deemed fit, ordering the winding up. Appointing a liquidator (often an official liquidator). Liquidating the LLP’s assets. Paying off creditors. Distributing any remaining funds to partners. The NCLT passing an order for dissolution.

6. What are the grounds for compulsory winding up of an LLP?

Grounds for compulsory winding up include: The LLP is unable to pay its debts. The LLP has acted against the interests of the State or general public. Just and equitable grounds. If the number of partners is reduced below two. If the LLP has failed to file its annual returns with the Registrar for a specified number of years.

Other Considerations

7. What are the fees for winding up an LLP?

Fees are prescribed by the MCA and the NCLT and are subject to change.

8. How long does the winding-up process take?

The process can take several months to years, depending on the complexity of the case.

9. What happens to the LLP’s assets and liabilities after dissolution?

After dissolution, the LLP ceases to exist legally, and its assets and liabilities are dealt with as per the winding-up process.

10. What are the implications for designated partners and partners after the LLP is wound up?

Designated partners’ responsibilities cease, but they may have certain liabilities. Partners receive any remaining assets after creditors are paid.

11. Can an LLP be revived after it has been dissolved?

Revival after final dissolution is generally not possible.

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