How to Wound up an LLP? An expert CA guide.

Struggling to close your LLP? Discover methods for winding up under the LLP Act with expert CA in Udaipur for a smooth process.

Closing or winding up of an LLP is a demanding assignment , where the partners wants to  decides on the methods available for winding of the LLP under the LLP Act

Overview

A defunct LLP with no business activities for the past year may close it by following the procedure and forward its application to the government authorities for striking off of its name subject to conditions that it should not possess any assets or liabilities and the partners must settle all accounts by selling the assets and liabilities. If the LLP does not have any assets or liabilities and got no objections from the creditors & parties’ including any other authorities, creditors, and partners

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 remove its name from the register.

Some of the few Reasons to Close an LLP

1. To avoid fines and penalties for late filing
2. The costs of keeping an LLP are higher than the costs of dissolving it
3. For any five consecutive financial years, the limited liability partnership fails to file its annual returns

Filing of Form

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

1. PAN Card, Aadhaar Card, and latest address proof of partners
2. Consent letter- signed by all the partners.

Pre-conditions before Closure of LLP

1. Submit overdue returns (Form 8 and Form 11) until the financial year when business operations ceased, before filing Form 24
2. File Income Tax return for years with business activities, ensuring no transactions in the preceding year
3. Sell assets and settle liabilities before making an application
4. Close all bank accounts prior to filing the application
5. Confirm submission of the initial LLP Agreement with the RoC.

A. Declaring an LLP Defunct

If anybody wants to close its LLP or it his t has not carried on any business activity for a year or longer, then that person can move an application to the Registrar for declaring the Limited Liability Partnership as defunct and then the name of the LLP will be removed from the register of LLPs under Section 37(1) (b).

B. Winding up of LLP

Section 63, 64 and 65 of LLP Act 2008 governs the process for winding up of the LLP. It is the process where all the assets of the business are disposed off to meet the liabilities of the same and surplus any, is distributed among the owners.

The LLP Act 2008 provides for following two modes for winding up the LLP: –

1. Voluntary winding up-

When partners themselves decide to close the LLP and under this partners voluntary wound up the operations of the LLP.

The Hon’ble Finance Minister, in her budget speech, had announced that the services of the Centre for Processing Accelerated Corporate Exit (C-PACE) would be extended to facilitate the voluntary closure of LLPs. Accordingly, the Ministry of Corporate Affairs (MCA) has notified the Limited Liability Partnership (Amendment) Rules, 2024. Under these amended rules, effective from the 27th August 2024, (Notification G.S.R. 475(E), Dated 05.08.2024 )  the application for voluntary closure of LLPs will now be approved by C-PACE instead of the Registrar

This measure will provide expeditious approval of applications filed by the LLPs with an intention to close operations voluntarily. This will also provide a hassle-free filing, timely and process-bound striking off of LLPs from the Register

2. Compulsory winding up–

A limited liability partnership may be compulsorily wound up by the Tribunal, when circumstances force partners to do so:-

1.  if the limited liability partnership decides that limited liability partnership be wound up by the Tribunal
2.  If number of partners  of LLP are reduced below two for more than six months
3. if LLP   is unable to pay its debts;
4. if LLP  has acted against the interests of the sovereignty and integrity of India, the security of the State or public order
5.  if the LLP has made a default in filing with the Registrar the Statement of Account and Solvency or annual return for any five consecutive financial years; or
6. if the Tribunal is of the opinion that it is just and equitable that the limited liability partnership be wound up.

Requirement and form 24 filing procedure

1. File Form LLP Form 24. But before filing the form, the entire precondition should be satisfied alongwith documentary evidence.
2. 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.
3. The income tax return of the LLP should be enclosed with the Form LLP 24.
4. The LLP agreement must be filed with the MCA within 30 days of registration after the LLP is formed.
5. A statement of accounts must be enclosed   disclosing  NIL assets and NIL liabilities and it need to be  certified by a practising chartered accountant up to thirty days prior to the date of filing of Form 24
6. The relevant documents, along with LLP Form 24, can then be filed with the MCA for struck off the name of LLP  

Procedure of Closing LLP

1. Pass a resolution with the consent of at least 3/4th of the total number of partners. A certified true copy of 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.
2. Majority of the partners should made an  announcement 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 resolut
3. Within the next 14 days as part of the Company Registration process, the LLP should give notice of the resolution by placing an advertisement in a newspaper.
4. The LLP liquidator should be appointed with the approval of two-thirds majority of the partners and fix remuneration. If no liquidator is appointed,  then the Tribunal will appoint  an LLP liquidator
5. 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

If Closing an LLP is an essential then it must be done by following the procedure as laid down in the LLP Act otherwise it may lead to penalties and prosecution for partners.

Closing an LLP can be challenging. Explore our expert CA insights on the winding-up process and the options available under the LLP Act for partners.