Before you close your doors for the final time as a publicly-traded corporation, it's important to make sure you have filed all of the required paperwork. Penalties and, in extreme situations, even jail may follow failure to comply. For this reason, it's crucial to submit your LLP return before shutting
LLP return is complicated, and understanding them all upfront could leave you in over your head. That’s why it’s helpful to understand how they work along with any potential strategies you might consider. Knowing when to file and what kind of penalties are involved can help keep you on the right track — whether that means staying in business or not. Fortunately, there are many ways to make sure your return is submitted before permanently closing your doors. Filing your LLP return before closing is one such way — perhaps one of the most effective ones! Read more if you need to Close the LLP.
Why Must an LLP File All Returns Prior to Requesting to Close the LLP?
To avoid having to submit a different tax return for each member, you can create an LLP. This is generally referred to as the ‘LLP-combination’ and refers to the fact that you will file a single tax return with the IRS.
One of the main advantages of forming an close LLP online over a partnership or corporation is that you will not have to disclose the names, addresses, business interests, or income of members to the IRS, nor will you have to disclose the amount of income and/or assets of the partnership or corporation to the IRS.
This is because each member of the partnership or corporation will be considered an individual and will be required to file a separate tax return. The only names that the IRS will know about are the names on the LLP membership agreement.
How to File Your LLP Return Before Closing
In order to avoid paying any taxes beyond those you’re required to, it’s important to file your annual LLP tax return before closing your doors for good. Why? Because if you don’t, anyone who had any dealings with your business at any point in the past two years could end up paying some or all of your taxes. And for the following reasons: You are in charge of informing the IRS of your earnings and outgoings.
- If you don’t file a tax return, the IRS has the right to “pump-raise” or get a hold of your paperwork in order to determine if you owe taxes
- If you owe taxes, they could end up higher than if you hadn’t filed. Your business could potentially owe income taxes in addition to or instead of taxes that you must pay
- If you have employees, they may be responsible for paying taxes in addition to or instead of you. Your business could potentially owe employment taxes in addition to or instead of taxes that you must pay.
How to File Your LLP Return Before Closing
It’s important to remember that filing your methods to close an LLP return before you close your doors for good will not only ensure that you’ve filed all of the paperwork necessary, but it will also prevent you from paying any taxes that you don’t have to. And here are a few reasons why: Business owners are required to file a tax return each year.
While you won’t be taxed twice for the same actions, you will be responsible for paying taxes in addition to any taxes that the IRS may charge you. If you don’t file a tax return, the IRS has the right to “pump-raise” or get ahold of your paperwork in order to determine if you owe taxes. If you owe taxes, they could end up higher than if you had filed. You could potentially face additional tax liens, judgments, or other legal actions if you don’t pay your taxes.
Strategies for Filing Your LLP Return Before Closing
Filing your LLP tax return before you close your doors for good will ensure that you’re complying with all of the relevant regulations and that you’re not in any violation of the law. Here are a few strategies for filing your LLP tax return before closing: Keep a Record. Make sure that you keep all of the necessary paperwork in a safe place so that you can easily access them when needed.
This will ensure that you are compliant with all of the relevant regulations and that you’re not in any violation of the law. While you don’t have to file a federal income tax return, it’s a good idea to familiarise yourself with how your taxes break down for various types of income as it will help you stay in compliance.
How to Summarise Your Return Once You’ve Filed It
Once you’ve filed your tax return and verified your accuracy, it’s time to summarise your return once you’ve closed your doors for good. The usual method for doing this is to sum up all of your income and remove all of your outgoings.
When filing your LLP return, you want to make sure that you include all of your income and expenses, including income that you derived from sources outside of your business and expenses that were necessary for your business to function and grow. By doing this, you’ll make sure that you don’t pay any taxes that aren’t needed by law.
The LLP Closure Process
- Plan to provide the documents in accordance with the shared checklist.
- If a bank account is available, close it and arrange for a closure certificate.
- Obtain a NIL statement of accounts from a Chartered Accountant and compile all documentation necessary for filing.
- Form submission-LLP Form 24 must be filed within 30 days of the date on which the Chartered Accountant provides the NIL statement.
Benefits of Closing an LLP
Shutting down a Limited Liability Partnership (LLP) offers several benefits. It relieves partners from ongoing responsibilities and regulatory requirements, enabling them to explore new opportunities with a clean slate.
Documents Required to Close an LLP
When preparing to close an LLP, a crucial step is gathering the necessary documents for submission. The following documents are required as part of the closure application in e-Form 24:
- Address Proof of LLP
- NOC from Landlord (If Applicable)
- Statement of Accounts
- Copy of Acknowledgement of Latest ITR
- Copy of Initial LLP Agreement and Amendments
- Affidavit from Designated Partners
- NOC from Creditors
- Detailed Application
- Proof Showcasing Authority to Make the Application
- Indemnity Bond
Procedure to Close Limited Liability Partnership
The two primary ways to close an LLP are:
- Declaring Limited Liability Partnership as Defunct
If an LLP has ceased business activities for at least one year, it can apply to the Registrar to be declared defunct. This process involves filing e-Form 24, along with consent from all partners. The Registrar issues a notice and awaits representation from the LLP before proceeding with striking off its name.
2. Winding Up of Limited Liability Partnership
Under this approach, an LLP’s assets are disposed of to meet liabilities. The LLP Act, 2008 provides two methods for winding up:
3. Voluntary Winding Up: Partners decide to halt and wind up LLP operations.
4. Compulsory Winding Up: The tribunal might mandate winding up due to various reasons, including an inability to pay debts or acting against national interests.
Step-by-Step Guide to Closing Limited Liability Partnership
Step 1: Calling a Board Meeting
Initiate the process by convening a meeting of Partners/Designated Partners to pass a resolution for LLP closure and authorize a designated partner to apply with the Registrar.
Step 2: Settling Liabilities
Address any existing liabilities within the LLP before proceeding.
Step 3: Application to ROC – e-Form 24
Submit an application to the Registrar using e-Form 24, including necessary particulars and attachments such as resolutions, statements of accounts, consent of partners and creditors, and more.
Step 4: Surrender PAN and TAN
Once the Registrar issues a Certificate of Closure, partners must surrender the LLP’s PAN and TAN.
Navigating the closure process systematically ensures compliance and a smooth transition to the next venture.
Closing an LLP involves a strategic approach and adherence to legal requirements. Understanding the documents needed and the steps to follow empowers partners to successfully conclude the LLP’s affairs. For further insights and assistance, you can get in touch with our experts right away!
Legal Provisions for Closure of LLP or Strike off of an LLP
Rule 37 of the Limited Liability Rules, 2009 deals with the striking off name of Defunct LLP. Defunct means those LLPs which are not functioning or not operating. Hence, it is prerequisite that LLP must be defunct for at least 1 year before applying for closure. It provides that “where a limited liability partnership is not carrying on any business or operation for a period of one year or more, such LLP can make an application to the Registrar, with the consent of all partners of the limited liability partnership for striking off its name from the register“. Limited Liability Partnership (Amendment) Rules, 2017 added sub-rule 1A after sub-Rule 1 of Rule 37 as follows:
- The LLP shall file overdue returns in Form 8 and Form 11 up to the end of the financial year in which it ceased to carry on its business or commercial operations before filing Form 24; ii.
- enclose along with Form 24,—
- (a) a statement of account disclosing nil assets and nil liabilities, certified by a Chartered Accountant in practice made up to a date not earlier than 30 days of the date of filing of Form 24; Advertisement
- (b) an affidavit signed by the designated partners, either jointly or severally, to the effect: Advertisement
- (i) that the Limited Liability Partnership has not commenced business or where it commenced business, it ceased to carry on such business from ………….(dd/mm/yyyy);
- (ii) that the limited liability partnership has no liabilities and indemnifying any liability that may arise even after striking off its name from the Register;
- (iii) that the Limited Liability Partnership has not opened any Bank Account and where it had opened, the said bank account has since been closed together with certificate(s) or statement from the respective bank demonstrating closure of Bank Account;
- (iv) that the Limited Liability Partnership has not filed any Income-tax return where it has not carried on any business since its incorporation, if applicable.
- (c) a copy of the acknowledgement of the latest Income-tax return; Advertisement
- (d) copy of the initial limited liability partnership agreement, if entered into and not filed, along with changes thereof in cases where the Limited Liability Partnership has not commenced business or commercial operations since its incorporation.
Wrapping Up: The Final Words on Filing Your LLP Return Before Closing
Once you’ve filed your LLP tax return, it’s important to make sure that you keep accurate and detailed records. This will ensure that you don’t pay any taxes that you’re not legally required to pay. Keep in mind that filing your LLP return before closing your doors for good will ensure that you’re compliant with all of the relevant regulations and that you’re not in any violation of the law.
Also, Vakilsearch’s experts can help you with any aspect of your company’s/ firm’s returns. Vakilsearch professionals assist partnership firms in forming and closing their activities, ensuring a smooth transition.
Can we close LLP without filing an annual return?
No, it is not advisable to close an LLP without filing an annual return. Always ensure that all financial and compliance obligations are met before proceeding with closure to avoid any future issues. For assistance with filing LLP Returns Before Closure, get in touch with the Vakilsearch experts right away!
What happens if LLP is not closed?
If an LLP is not closed and remains inactive, it could lead to penalties for non-compliance with regulatory requirements. Moreover, the LLP's partners might continue to be held responsible for any ongoing legal and financial obligations.
Can I close LLP before 1 year?
Yes, you can close an LLP before one year if it has ceased all business operations and fulfilled the requirements for closure. The process involves submitting an application to the Registrar and obtaining their approval.
Is an annual return mandatory for LLP?
Yes, filing an annual return is mandatory for LLPs. It helps maintain transparency and ensures compliance with statutory regulations. Failing to file an annual return could lead to penalties and legal consequences.