What Happens if I Don’t Close an LLP?

If your LLP has not been active or is inoperational for more than a year, it is better to close down the LLP officially. This article shall explain what is meant by closing down an LLP and why you should do it.

What Is Meant by Striking off an LLP?

When a Limited Liability Partnership (LLP) is registered, its name is registered in the list of companies with the Registrar of Companies(RoC). When an LLP goes defunct or is in operational for more than a year, one can close an LLP by applying for the striking off of the LLP’s name from the register. The LLP Amendment Rules, 2017, lays down the rules and procedure for closing an LLLP.

Reasons to Close an LLP

Starting a Limited Liability Partnership and running it is not an easy task. Similarly, closing an LLP always seems a difficult task to perform. There are, however, certain circumstances that necessitate the closure of the business entity. Such reasons could include the following:

1. If the LLP has been unable to pay its debt and is looking for a way to dissolve
2. If the LLP has less than two partners for more than six months
3. If the LLP has failed to file its financial statements for the past five years
4. When the LLP was registered for a specific purpose that has been completed
5. The LLP has been declared to be insolvent.
6. When the LLP has been inoperational for at least one year.
7. The court or tribunal has ordered to wind up the LLP.

Why Is It Necessary to Close an LLP which is Inoperational?

• Running an LLP comes with a lot of Government rules and regulations that are to be complied with. Failing to comply with them could incur heavy penalties for the Limited Liability Partnership company
• Complying with the maintenance of the LLP is higher than the cost of its closure. If the LLP is inoperational it would be rather beneficial to wind it up or close an LLP
• These compliances include filing returns on time. If failed to do so, there could be huge penalties for late filing.
• This also applies to LLPs that are inoperational or inactive or do not conduct any business. This means an LLP has to be properly stricken off to legally cease its existence.

Pre-requirements for Closing an LLP

To close an LLP as per the rules of the Government, the following are some pre-requirements and documents:

• All the assets of the LLP registration are to be settled by the designated partners
• Liabilities of the LLP, if any, need to be settled
• Nil assets and liabilities letter has to be certified by a practicing Chartered Accountant
• An application to remove the Limited Liability Partnership has to be prepared
• Resolution of the board or consent of the designated partners is to be obtained for the closure of the LLP
• Filing of all the annual returns and Forms 8 and 11 should be up to date
• Income Tax returns have to be filed until the last financial year when the LLP was in operation
• Certification has to be obtained stating that there is no more compliance to be filed
• All current accounts of the LLP should be closed.

The Process to Close an LLP Officially

The procedure to close an LLP depends on the method of closure or winding. 

• If the LLP closure is decided by the designated partners, the approval of at least 3/4th of the total number of the new partners in an LLP is required. For a voluntary closure, a liquidator is mandatory. 
• The Tribunal can also compulsorily wind up a Limited Liability Partnership under certain prescribed circumstances, similar to the procedures followed during the registration of a company and company incorporation.
• Another kind of closure is when the LLP has been declared defunct due to inactivity for more than a year, the registrar may strike out its name from its register. In such a case, an application (e-form 24) with the required documents is to be submitted to the ROC filing. 
• The registrar also has the power to strike off any defunct LLP, if it has some reasonable cause. In such circumstances, the registrar has to notify the LLP about its intentions and ask them to send their representations within a month. The registrar then shall publish the information to the general public for any opposition. After which, the name of the LLP shall be stricken from the register.

How Long Does It Take To Officially Close an LLP?

After verification of all the documents and the application, the certificate of closure shall be issued. The official closure of an LLP and obtaining the closure certificate can take up to seven to eight months, depending on the type of closure.

Conclusion

Closing a non-operational LLP is a better option than fulfilling compliances, and paying penalties. Though the procedure to apply for the LLP closure may be simple, to avoid legalities and heavy penalties, one can seek the services of professionals like Vakilsearch. The experts at Vakilsearch can close an LLP done speedily while ensuring proper and rightful submission of all the required files and documents.