Closure of LLP in India: Reasons, Winding Up Methods & Legal Impact
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:
a. Passing a Resolution – A resolution must be passed by all designated partners for voluntary winding up.
b. Settling Liabilities – All outstanding debts and liabilities must be cleared before filing for closure.
c. Obtaining Consent from Creditors – If the LLP has creditors, their approval is required for voluntary closure.
d. Filing of E-Form 24 –
o The LLP must file Form 24 under Rule 37 of LLP Rules, 2008 to strike off its name from the register.
o 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
e. 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:
a. Filing a Petition – The petition for winding up can be filed by the LLP itself, creditors, or the Registrar.
b. Issuance of Public Notice – A notice is issued to creditors, employees, and stakeholders for objections.
c. Appointment of Liquidator – A liquidator is appointed to manage asset distribution and debt clearance.
d. Final Order by Tribunal – Upon completion of the process, the tribunal issues an order to dissolve the LLP.
4. Impact of Closure of LLP
• 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
Closure of 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.
frequently asked questions (faq's) related to winding up or closure of LLP
Q What is the difference between "closure" and "winding up" of an LLP?+
Q Why would an LLP be closed or wound up?+
Q What are the different modes of winding up an LLP?+
Q What is the process for voluntary winding up of an LLP?+
Q What is the process for compulsory winding up of an LLP?+
Q What are the grounds for compulsory winding up of an LLP?+
Q What are the fees for winding up an LLP?+
Q How long does the winding-up process take?+
Q What happens to the LLP's assets and liabilities after dissolution?+
Q What are the implications for designated partners and partners after the LLP is wound up?+
Q Can an LLP be revived after it has been dissolved?+
Q How do I find out if an LLP is being wound up?+
Q What is the role of a liquidator in the winding-up process?+
Q What happens to the LLP's bank accounts after it is wound up?+
Q What are the tax implications of closing or winding up an LLP?+
Q How can I avoid my LLP being wound up?+
Q What are the consequences of not complying with the winding-up process?+
Q What is the difference between a voluntary winding up and a compulsory winding up of an LLP?+
Q What is the role of the NCLT in the winding-up process of an LLP?+
Q How do I dissolve an LLP if it has no assets or liabilities?+
Q Where can I find legal advice regarding the closure or winding up of an LLP?+
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