Closing or winding up of an LLP is a challenging task, where the designated partners and all partners must first decide on the best method available under the LLP Act, 2008 to wind up the LLP. This blog deals with the procedures for closing LLPs.
Overview
In India, LLP closure procedure refers to the striking off of the name of a defunct LLP with no business activities for the past year. For this process, the LLP must possess neither assets nor liabilities. Designated partners must settle any remaining accounts by selling assets and clearing liabilities. If the LLP has no assets or liabilities and faces no objections from the public, the Registrar will proceed to close the LLP. Now get to know more about the same here.
Legal Provisions for Closing of LLP in India
According to Rule 37 of the Limited Liability Rules, 2009, if a Limited Liability Partnership (LLP) is inactive for one year or more, it can apply to the Registrar, with unanimous consent from all partners, to have its name removed from the register.
Reasons to Close an LLP
LLPs must be closed in accordance with the LLP Act where the designated partner is subject to significant penalties and prosecution if the LLP’s due returns are not filed on time. Here are few reasons to close an LLP:
- The costs of keeping an LLP are higher than the costs of dissolving it
- To avoid fines and penalties for late filing
- The LLP is either unable to pay its bills or is on the verge of bankruptcy. For any five consecutive financial years, the limited liability partnership fails to file its annual returns
- The LLP is incompatible with India’s integrity and sovereignty, security of state and public order.
Conditions
- LLP has been inactive for at least one year or has been inactive since its formation
- As of the date of application, LLP has no assets or liabilities and its current account has been closed
- LLP obtain the parties’ consent, including any other authorities, creditors, and partners
- Form 24 should be filled with ROC indicating no debts of the company and its ability to pay debts.
Documents Required for Closing an LLP
- PAN Card, Aadhaar Card, and latest address proof of partners
- Consent letter- signed by all the partners.
Pre-conditions Before Closure of LLP
- Submit overdue returns (Form 8 and Form 11) until the financial year when business operations ceased, before filing Form 24
- File Income Tax return for years with business activities, ensuring no transactions in the preceding year
- Sell assets and settle liabilities before making an application
- Close all bank accounts prior to filing the application
- Confirm submission of the initial LLP Agreement with the RoC.
Two Ways to Close an LLP
One is when partners themselves want to close an LLP and decide to do so, and the other is when circumstances force partners to do so.
A. Declaring an LLP Defunct
If an LLP intends to close down its business or if it has not carried on any commercial operations for a year or longer, it can apply to the Registrar to have the Limited Liability Partnership declared defunct and the name of the LLP removed from the register of LLPs under Section 37(1) (b).
Procedure
- LLP Form 24 can be filed only by LLPs that never commenced business or have ceased commercial activity. Also it can only be filed by LLPs that have no creditors and no bank account as of the registrar’s date of closure, and a document confirming this must be obtained
- All of the LLP’s designated partners must first sign an affidavit, jointly or severally, stating that the Limited Liability Partnership ceased to carry on commercial activity on or after the date
- Along with Form LLP 24 the income tax return of the LLP must be enclosed
- The LLP agreement must be filed with the MCA within 30 days of registration after the LLP is formed. If this requirement is not met, late costs of ₹100 per day must be paid
- A statement of accounts must be acquired that discloses NIL assets and NIL liabilities and is certified by a practising chartered accountant up to thirty days prior to the date of filing of Form 24
- The relevant documents, along with LLP Form 24, can then be filed with the MCA to have the LLP name struck off. If the application is judged to be acceptable, the concerned Registrar of Companies will post a notice on the MCA website.
B. Voluntary Closure
However, where the LLP have debts to pay, or there are creditors/liabilities, the LLP must approach the National Company Law Tribunal for closure. This is called voluntary winding up.
LLP Closure Procedure
- Passing a resolution with the consent of at least 3/4th of the total number of partners. A replica of the resolution should be filed with the Registrar on Form 1 within 30 days of passing the resolution and another copy should be given to the individual who takes care of the process
- An announcement must be made by the majority of the partners in Form 2 stating non-liability of any unpaid debts or promising to pay debts within an assured time period not exceeding more than one year from the date of passing of the resolution
- Within the next 14 days, the LLP should give a notice of the resolution by advertisement in a newspaper
- With the approval of two-thirds majority of the partners, an LLP liquidator is appointed with fixed remuneration. If no liquidator is acting, then the Tribunal will be appointing an LLP liquidator
- The LLP liquidator will file a report in Form 9 outlining the winding-up procedure completed as soon as the LLP’s affairs are wound-up, liabilities discharged and assets being liquidated. It will contain the final closing of the accounts, complete with all full explanations, as well as the disposition of the property. After that, the partners and creditors must agree to the dissolution.
Conclusion
Closing an LLP is a crucial process that must be done in accordance with the LLP Act. Failure to do so can result in penalties and prosecution for designated partners. For more legal information, visit Vakilsearch.
Frequently Asked Questions
What is Form 24 for LLP closure?
Form 24 is a crucial document for closing a Limited Liability Partnership (LLP) in India. The applicant is required to submit it to the Registrar of Companies (RoC).
Can LLP be closed without filing Form 3?
No, an LLP cannot be closed without filing Form 3, which declares the statement of solvency.
What is the fee for Form 24 LLP closure?
The fee for Form 24 LLP closure varies based on the LLP's capital and the filing timeline, providing flexibility for different scenarios. For more details get in touch with our experts today.
