LLP WINDING UP

LLP Winding Up

A LLP winding up can be initiated voluntarily or by striking off or by a Tribunal. If a LLP is to initiate winding up voluntarily, then the LLP must pass a resolution to wind up the LLP with approval of at least three-fourths of the total number of Partners. If the LLP has lender’s, secured or unsecured, then the approval of the lenders would also be required for winding up of the LLP.

To begin the process for winding up of LLP, a resolution for winding up of LLP must be passed and filed with the Registrar within 30 days of passing of the resolution. On the date of passing of resolution of winding up of LLP, the voluntary winding up shall be deemed to commence. IndiaFilings can help you wind up your LLP quickly and easily.

Voluntary Winding up / Liquidation of LLPs

 LLP’s are easy to start and maintain business entities. After starting a LLP,  in some cases there might be a requirement to windup or liquidate the LLP due to various reasons. LLPs can also be wound-up easily with the approval of 3/4th of the partners.  In this article, we look at the procedure for winding up of LLP.

Starting the Liquidation Process

To start the liquidation process for a LLP, a greater part of the designated partners, will have to make a declaration that the LLP has no debt or that it will be competent to pay the debts in full within a period of not more than 1 year from the start of winding up.

Further, the LLP partners must declare that the LLP is not being wound up to defraud any person or persons. This declaration for winding up of the LLP must be prepared along with a statement of assets and liabilities until the most recent practicable date right before the making of declaration for winding up. A valuation of the assets related to the LLP prepared by a valued must also be submitted, if there are assets in LLP.

Voluntary winding up will be deemed to start on the date of passing of resolution for the reason of voluntary winding up. The declaration for winding up of LLP, statement of assets and liabilities and other documents for winding up of the LLP must be submitted to the Registrar of Companies within a period of 15 days from the date of passing of the resolution.

Meeting of Creditors

The consent of the creditors is to be secured for winding up of the LLP, if there are creditors. For taking the consent of creditors for winding up, a meeting of creditors can be setup by sending the declaration through registered post or speed post or any other mode to the creditors with a summary of the amount of the claims owing to each of the creditors and an offer for creditors to agree to such claim.

Appointment of LLP Liquidator

After a decision to windup the LLP, a LLP liquidator must be appointed by the Designated Partners of the Creditors.  In case the LLP has no creditors, the LLP  within 30 days of passing of resolution of voluntary winding up should appoint  a LLP liquidator.  The fee payable to the Liquidator is to be fixed and paid by the LLP.

Dissolution & Winding Up

As soon as the affairs of a LLP are completely wound up, the LLP liquidator will prepare a report mentioning the method in which the winding up has been conducted and property has been disposed off, final winding up the accounts and mentioning that the property and assets of the LLP have been disposed of and its debts completely discharged to the satisfaction of the creditors. With this report, the LLP liquidator would seek the approval of the partners or creditors of the LLP and conclude the winding up in  a meeting of the Partners. 

Its important to note that the accounts of the LLP liquidator will have to be audited by a Chartered Accountant. The audit of LLP liquidator accounts is not necessary if the value of total transactions during the period is Rs. 50,000 or less.  If the audit is not necessary, the statements of accounts should contain a declaration that the LLP liquidator acknowledges his/her accountability for maintaining the books and records and funds are utilized only for the reason of winding up of the affairs of the LLP.

LLP Form 24 – Easily Close a LLP

The MCA has recently amended Limited Liability Partnership Rules, 2009 by introducing the Limited Liability Partnership (Amendment) Rules, 2017 with effect from 20th May, 2017. With this amendment, LLP Form 24 has been introduced by the MCA and it is now possible to easily close a LLP by making an application to the Registrar for striking off name of LLP. In this article, we look at LLP Form 24 and the procedure for striking off name of LLP in detail.

Winding Up a LLP

The penalty for LLPs defaulting in filing of any statutory return is Rs.100 per day, without any maximum limit. Hence, its is often best to windup dormant LLPs so that there is no requirement to file LLP Form 11, LLP Form 8 and Income Tax Return for the LLP each financial year to maintain compliance and avoid penalty.

Before the introduction of the Limited Liability Partnership (Amendment) Rules, 2017, the procedure for winding up a LLP used to be long and cumbersome. However, with the introduction of LLP Form 24, the procedure has been made easy and simple.

Hence, its best for Entrepreneurs having dormant or defaulting LLPs that are accruing penalty to use this opportunity to close the LLP.

Filing LLP Form 24

The following procedure can be followed for closing a LLP by filing Form 24:

Step 1: Cease Commercial Activity

LLP Form 24 can be filed only by LLPs that never commenced business or have ceased commercial activity. Hence, if the LLP is operational and the promoters wish to close the LLP, the LLP must first cease all commercial activity.

Step 2: Close Bank Account(s)

LLP Form 24 can be filed only by those LLP that have no creditors and no open bank account. Hence, prior to filing LLP Form 24, any bank account opened in the name of the LLP must be closed and a letter evidencing closure of the bank account in the name of the LLP must be obtained from the Bank.

Step 3: Prepare Affidavits & Declaration

All the Designated Partners of the LLP must first execute an affidavit, either jointly or severally, that the Limited Liability Partnership ceased to carry on commercial activity from (Date) or has not commenced business.

Further, the LLP Partners must also declare that the LLP has no liabilities and indemnify any liability that may arise even after striking off its name from the Register. The liability of the Partners would not be extinguished even after closure of a LLP while using Form LLP 24.

Step 4: Prepare Documents

Along with Form LLP 24 the income tax return of the LLP and LLP deed must be enclosed. In case the LLP has not filed any income tax return and it has not carried on any business activity, then it is not required. Else, a copy of the acknowledgement of the latest Income-tax return filed must be attached with the application for closing the LLP.

Step 5: File Any Pending Documents

After incorporation of a LLP, the LLP agreement must be filed with the MCA within 30 days of registration. In case this compliance was missed and LLP agreement was not filed, then the initial LLP agreement, if entered into and not filed, along with any amendments must be filed.

Also, any overdue returns in Form 8 and Form 11 up to the end of the financial year in which the limited liability partnership ceased to carry on its business or commercial operations must be filed before filing LLP Form 24.  The date of cessation of commercial operation is the date from which the Limited Liability Partnership ceased to carry on its revenue generating business and the transactions such as receipt of money from debtors or payment of money to creditors, subsequent to such cessation will not form part of revenue generating business.

 Step 6: Obtain Chartered Accountant Certificate

Once all the documents for filing of LLP Form 24 is prepared, a statement of accounts disclosing NIL assets and NIL liabilities, that is certified by a practicing Chartered Accountant up to a date not earlier than thirty days of the date of filing of Form 24 must be obtained.

Step 7: File LLP Form 24

The above mentioned documents along with LLP Form 24 can be then filed with the MCA to strike off name of LLP. On processing the application, if found acceptable, the concerned Registrar of Companies would cause a notice to be published on the MCA website announcing the striking off of the LLP.

How to Close a LLP – Winding Up of LLP

LLP is a new form of business entity introduced in India through the LLP Act, 2008. LLP enjoys audit exemption, if the annual turnover of the LLP is less than Rs.40 lakhs and/or the capital contribution is less than Rs.25 lakhs. This feature has made LLP popular amongst many entrepreneurs. However, due to a number of reasons, it may be necessary to close a LLP or windup a LLP. In this article, we cover the procedure for voluntary wingding up of LLP in India.

LLP Winding up Overview

A LLP winding up can be initiated voluntarily or by a Tribunal. If a LLP is to initiate winding up voluntarily, then the LLP must pass a resolution to wind up the LLP with approval of at least three-fourths of the total number of Partners. If the LLP has lenders, secured or unsecured, then the approval of the lenders would also be required for winding up of the LLP.

Winding up of LLP by Tribunal

Winding up of LLP can be initiated by a Tribunal for the following reasons:

1. The LLP wants to be wound up.
2. There are less than two Partners in the LLP for a period of more than 6 months.
3. The LLP is not in a position to pay its debts.
4. The LLP has acted against the interests of the sovereignty and integrity of India, the security of State or public order.
5. The LLP has not filed with the Registrar Statement of Accounts and Solvency or LLP Annual Returns for any five consecutive financial years.
6. The Tribunal is of the opinion that it is just and equitable that the LLP should be wound up.

Winding Up of LLP Procedure

LLP Winding Up Procedure

To begin the process for winding up of LLP, a resolution for winding up of LLP must be passed and filed with the Registrar within 30 days of passing of the resolution. On the date of passing of resolution of winding up of LLP, the voluntary winding up shall be deemed to commence.

Once, the resolution for winding up of LLP is filed with the Registrar, the majority of Partners (not less than two) shall make a declaration verified by an Affidavit to the effect that the LLP has no debt or that it will be in a position to pay its debts in full within a period, as mentioned in the declaration, but not exceeding one year from the date of commencement of winding up of LLP. Along with the Affidavit signed by the majority Partners, the following documents must be filed with the Registrar within 15 days of passing of the resolution for winding up of LLP:

• Statement of assets and liabilities for the period from last accounts closure to date of winding up of LLP attested by atleast two Partners
• Report of valuation of the assets of the LLP prepared by a valuer, if there are any assets in the LLP.

Winding up of LLP with Creditors

If a LLP under winding up has any secured or unsecured creditors, then before taking any action for winding up of LLP, the approval for winding up of LLP must be requested from the creditors. Creditors are required to provide their opinion on winding up of LLP within 30 days of receipt of request for approval for winding up. If it is in the interest of all partners and all creditors that the LLP be wound up, then the LLP can proceed with voluntary winding up procedure.

Appointment of LLP Liquidator

A LLP Liquidator must be appointed within thirty days of passing of resolution of voluntary winding up through a resolution. In case there are any creditors, then the appointment of LLP Liquidator shall be valid only if it is approved by two thirds of the creditors in value of the LLP.

It is then the duty of the LLP Liquidator to perform the functions and duties for winding up of LLP. The LLP Liquidator would settle the creditors and adjust the rights of the partners, as the case may be. While discharging his duties, the LLP Liquidator is required to maintain proper books of accounts pertaining to the winding up of the LLP.

Filing of Winding Up Report by LLP Liquidator

Once, the affairs of the LLP is fully wound up, the LLP Liquidator would prepare a report stating the manner in which the winding up of LLP has been conducted and property of the LLP has been disposed off. If two thirds of the number of Partners and Creditors in value are satisfied with the winding up report prepared by the LLP Liquidator, then a resolution for winding up of accounts and explanation for dissolution must be passed by the Partners.

The LLP Liquidator must then send the LLP winding up report along with the resolution to the Registrar and file an application with the Tribunal.