How to Close an LLP in India?

Introduction

Within 30 days following the resolution's passage, the company's directors must register it with the Registrar of Companies to close an LLP. A statement of assets and liabilities from the date of account closure to the date of the LLP's dissolution, attested by at least two partners, must be submitted within 15 days after the resolution's passage. It is necessary to compile a report on the asset appraisal of the organization. Once this has been accomplished, the majority of partners must sign a declaration stating that the LLP has no debts or can settle all debts within a time limit of no longer than one year following the date of the company's dissolution.

Explaining Limited Liability Partnerships

A sort of business structure known as a limited liability partnership (LLP) limits the owners' liability while allowing for an unorthodox corporate structure. Owners can function in the organization at the same level and status by using this form of operation.

The Limited Liability Partnership Regulations, 2001, among other pieces of legislation, govern limited liability partnerships, which are separate from "ordinary" commercial partnerships and the limited company form.

Conditions

Any LLP can close down its business by adopting any of the following two ways:

A) Declaring the LLP as Defunct

In case the LLP wants to close down its business or where it is not carrying on any business operations for one year or more, it can make an application to the Registrar for declaring the LLP as defunct and removing the name of the LLP from its register of LLP.

eForm 24 is required to be filed for striking off the name of LLP under clause (b) of sub-rule 1 of Rule 37 of LLP Rules 2008. Similarly, Registrar also has the power to strike off any defunct LLP after satisfying himself of the need to strike off and has reasonable cause. However, in this case, the registrar has to send a notice to the LLP of his intention and request to send their representation within one month from the date of the notice. The Registrar shall publish such notice or content of the application made by the LLP on its website for one month for the information of the general public. In case no reply is received within the mentioned period, the registrar may strike off the name of LLP.

B) Winding up of an LLP

Section 63, 64, and 65 of the LLP Act 2008 governs the process for winding up the LLP. It is the process where all the assets of the business are disposed of to meet the liabilities of the same and the surplus, is distributed among the owners. The LLP Act 2008 provides for the following two modes for winding up the LLP i.e.:

• Voluntary winding up

• Compulsory winding up

Voluntary Winding up: Under this, the partners may themselves decide to stop and wound up the operations of the LLP.

Compulsory winding up - A limited liability partnership may be compulsorily wound up by the Tribunal,—

• if the limited liability partnership decides that limited liability partnership be wound up by the Tribunal;

• if, for more than six months, the number of partners of the limited liability partnership is reduced below two;

• if the limited liability partnership is unable to pay its debts;

• if the limited liability partnership has acted against the interests of the sovereignty and integrity of India, the security of the State, or public order;

• if the limited liability partnership 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

• if the Tribunal thinks that it is just and equitable that the limited liability partnership be wound up.

Reasons for Closing an LLP

The procedure for dissolving a Limited Liability Partnership (LLP) was drawn out and difficult before the passing of the Limited Liability Partnership (Amendment) Rules, 2017. But now that LLP Form 24 is available, the procedure is straightforward and simplified.

Here are a few justifications for closing an LLP and how to do so quickly and effectively:

• Some companies have only begun with a concept, but after putting it to the test, they discover that there is no profit, thus they wish to close the LLP.

• LLP filed for bankruptcy.

• When one partner passes away, there is only one left and they want to shut down the company.

• There has not been any commercial activity for a very long time.

• If the LLP is registered for and has finished a particular project, the partners are hesitant to continue the partnership or the firm.

Procedure

Here is how to quickly and effectively close an LLP:

•    Apply a shared checklist when delivering the documents.
•    Close any bank accounts you may have and get a closure certificate.
•    A chartered accountant should provide you with a NIL statement of accounts, and you should compile the necessary paperwork for filing.
•    Within 30 days of the day the chartered accountant receives the NIL statement, LLP Form 24 must be turned in.

Documents Required to Close an LLP

The following paperwork must be submitted too quickly and effectively to close an LLP:

• Application for dissolution of a Limited Liability Partnership (LLP) in full

• An affidavit that each partner signs either individually or collectively

• Agreement of all partners

• A chartered accountant in the practice-certified statement of accounts showing no assets or liabilities that are no more than 30 days old as of the application filing date.

• A copy of the most recent acknowledgment for an income tax return

• Both the primary and supplementary LLP agreements.

• LLP Documents

• LLP partnership agreement

• Recent tax returns for income

• Paperwork for closing bank accounts

• Latest LLP financial statements

• LLP PAN copy.

• Required Documentation from Partners

• Partners in a pan copy

• Copy of partners' Aadhaar

• Recent evidence of partners' addresses.

Procedure for Removing an LLP Name

With the consent of all partners, the Registrar or the LLP in e-Form 24 can start the process of having the name of the LLP struck out. The Registrar would issue a notice to the limited liability partnership and all of its partners telling them of the application's receipt and seeking any necessary documentation in addition to notifying them of his intention to remove the limited liability partnership's name from the register.

If any, within one month of the notice's date, and with copies of their claims. For the convenience of the general public, the notice regarding the LLP's name removal is also placed on the MCA website.

Issues with Closing an LLP

When a company fails, it is dissolved, and the remaining assets are given to the creditors. At this moment, the firm is no longer a valid legal entity. The corporation will not be dissolved, but its assets will be transferred to its creditors.

A company's charter expires when it ceases operations, necessitating the creation of new paperwork. The company's name, a new legal form, and a new logo are all included in the new documents. The previous company will have been dissolved and its assets transferred by the time the new company is founded and registered, so everything must be done fast.

Conclusion

The designated partners must sign the proposal for the closure of the defunct LLP along with the approval of the other partners if the LLP becomes inactive. It might take a long time and be difficult to close a business. Even if there are no problems, it may be important to wind down a failed company to make sure that future operations are only dedicated to serving current clients and partners who are still in good standing.

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Author:

Archita Sharma
Kanpur
Archita Sharma, IV year BA.LLB (Hons.) student from PSIT College of Law