What is a Limited Liability Partnership?

Limited Liability Partnership is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. The Limited Liability Partnership is a separate legal entity, is liable to the full extent of its assets but the liability of the partners is limited to their agreed contribution in the LLP.

The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.

What are the Methods to Close down the LLP?

An LLP can strike off its business by any of the following two ways:

A) By Declaring the LLP as Non-functioning:

In case the LLP wants to close down its business or where it is not carrying on any business operations for a period of 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’s.

B) By winding up of LLP:

In this process all the assets of the business are disposed of to meet the liabilities of the same and surplus any, 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 between 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 a period of 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 is of the opinion that it is just and equitable that the limited liability partnership is wound up.

Striking off of LLP

The Ministry of Corporate Affairs introduced the Limited Liability Partnership (Amendment) Rules, 2017 with effect from 20th May 2017 and has amended Limited Liability Partnership Rules, 2009. With this amendment, LLP Form 24 has been introduced by the MCA and it is now possible to easily close an LLP by making an application to the Registrar for striking off the name of LLP.

Conditions to be followed before going for Strike off:

• LLP is not carrying on any business or operation since incorporation or for a period of one year or more and wants to close down its business.
• Consent of all partners of the limited liability partnership for striking off its name from the register.
• Has filed 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 before filing Form 24;
• No creditor should exist as on the date of making an application for striking off.

Documents required for strike off of LLP:

• Statement of Accounts certified by CA which shall not be older than 30 days from the date of application.
• Acknowledgment copy of Latest Income Tax Return filed
• Copy of the Initial Limited Liability Partnership Agreement, if entered into and not filed
• Copy of Resolution authorizing to make the application duly signed by all the partners.
• Copy of detailed application mentioning details of LLP and reason for the closure.
• Bank Account Closure Certificate, if any
• Consent of Partners for Closure of LLP
• Affidavit verifying that there are no creditors/liability
• Indemnity Bond and Affidavit for Closure of LLP.

Prepare Form-24

After preparing all the documents LLP is required to file Form-24 with ROC with all the required attachments.

Time required for Approval by Registrar

The Registrar will verify all the documents presented by LLP and if there is no objection raised by the Registrar, they will strike off the LLP.

Conclusion

By introducing the Limited Liability Partnership (Amendment) Rules, 2017 the procedure for closing down the LLP has been made easy and simple. The penalties for filing any statutory return under the Limited liability Partnership Act or under Income Tax Act is quite high, therefore, it would be prudent for dormant or defaulting LLP’s to wind up their business.

Hence, it is best to strike off the nonoperational or defaulting LLP that are accruing penalties.

Udyog Buddy has helped a number of clients to close down their nonoperational or defaulting LLP’s for avoiding heavy penalties in the future under the Limited liability Partnership Act or under Income Tax Act.

Write to us at hello@udyogbuddy.com or connect through WhatsApp at +91 9301789019 for more details.

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