LLP or Limited Liability Partnership is a partnership (generally in a business) in which all the members (partners) have limited liabilities. Generally, an LLP is set up under legal terms and documents. There is a defined procedure as to how you can register your LLP. There are certain benefits to be in an LLP but like everything, it has its own disadvantages too. Sometimes, it so happens that people are confused as to how to get your LLP registered, however, most of them don’t even know that there is a defined procedure as to how you can close an LLP. Described below, to remove such misconceptions is a procedure with which you can close LLP in India.
The LLP Act, 2008 provides certain necessary guidelines when you want to close an LLP.
Ways to close LLP
Declaring your LLP Defunct
1.Declaring your LLP Defunct
In this, you have to make an application stating that your LLP is no more functional or simply is defunct and submit it to the Registrar. eForm 24 is required to be filed under Section 37(1)(b) and all the documents stated in the form is also a major requirement for which you submit it and name of your LLP thus are struck off from the LLP’s register.
2.Winding up your LLP
There are two stages in the winding up process i.e. Winding Up and Dissolution.
LLP Act 2008, Sections 63, 64 and 65 regulates the process of winding up an LLP. There are again two ways in which you can wind up your LLP;
Voluntary winding up
when partners decide amongst themselves to stop and close the LLP. LLPs can be wound-up in the following steps:
1) LLPs can be wound-up voluntarily by passing a resolution with the approval of at least 3/4th of the total number of partners. A copy of the resolution would have to be filed with the Registrar on Form 1 within 30 days of passing the resolution and a Copy of the authorisation given to the person who takes care of the process of winding up.
Winding up with creditors
2) A declaration made by the majority of the partners (at least 2) in Form 2 stating that they have no debts or they will pay their debts within a certain period of time (period specified by the partners) but not exceeding 1 year from the date of passing of the resolution for winding up. This statement must be signed by at least 2 designated partners. It must also contain a statement that the LLP is not being wound-up to defraud any person(s). Dues of the creditors can be paid before filing the declaration.
3) A verification of the declaration and statement must be filed on Form 3 within 15 days of the passing of the resolution immediately preceding the date of passing of the resolution for winding up. The documents required to be filed are:
(a) A statement of assets or liabilities (starting from the last date when accounts were prepared up till the latest practicable date immediately before making the declaration) must be filed in Form 4.
(b) A valuation report of the assets, if any, by a value.
4) Every creditor, whether secured or unsecured, of the LLP, must be sent, by registered post or speed post or email or courier:
(a) A copy of the declaration filed in Form 2.
(b) The estimated amount of claims due to and an offer to accept the claims.
The Creditors must give their opinion in respect of voluntary winding up within 30 days of the receipt of the declaration to the LLP.
5) When 2/3rds of the value of the creditors of the LLP consent that:
(a) It is in the interest of all the partners and the creditors that the LLP be wound-up, then the LLP will be wound.
(b) The LLP will not be able to pay all their dues in full from the proceeds of the assets sold and agree with the decision to go for voluntary winding up by the LLP, then the LLP will be wound-up.
(c) The LLP will not be able to pay all their dues in full from the proceeds of the assets sold and propose that it is in the interest of all the partners and creditors that the LLP be wound-up by the National Company Law Tribunal, then the LLP must within 14 days from the date of consent, must file an application with the Tribunal for winding up.
6) Notice of any decision of the creditors to the LLP must be filed by the LLP with the Registrar within 15 days from the date of receipt of the consent of the creditors in Form 5.
7) Where the dues of the creditors have been paid to their satisfaction, their opinion will not matter and the LLP can be wound-up.
Publication of winding up resolution
8) When the resolution for winding up has been passed and the creditors give the consent for winding up, then within 14 days the LLP must give notice of the resolution by advertisement in a newspaper circulating in the district where the registered office or principal office of the LLP is located.
Appointment of LLP liquidator
9) The LLP fill within 30 days of:
(a) the passing of a resolution of voluntary winding up, where the LLP has no creditors; or
(b) filing of a notice of the decision of winding up with the consent of the creditors, where the LLP has creditors;
with the consent of the majority of the partners, through resolution, appoint a voluntary liquidator as the LLP liquidator and fix his remuneration. The appointment of the liquidator will be allowed only after the approval of 2/3rds of the creditors in a value of the LLP in the case of the options 2 and 3 of the consent options.
If the creditors want, then they can nominate an LLP liquidator and in a case of simultaneous appointments by the creditors and the partners, the LLP liquidator appointed by the creditors will prevail.
If no liquidator is acting, then the Tribunal can appoint an LLP liquidator.
As soon as the affairs of the LLP are wound-up i.e. when assets have been liquidated and liabilities have been discharged, LLP liquidator will make a report, in Form 9, stating the manner in which winding up has been conducted, including a final closing of accounts with explanations, and the property has been disposed of. He will then seek approval of the partners and creditors for dissolution.
A resolution seeking approval must be circulated, whether in physical or electronic form. Partners and Creditors can seek clarifications within 30 days of circulation. Any further information can also be requested and must be provided within 30 days of receipt of the request.
If 2/3rds of the total number of partners or 2/3rds of the value of creditors, after considering the report, are satisfied that the LLP be wound-up, then a resolution for dissolution must be passed within 30 days of receipt of the report, winding up accounts and explanations for dissolution in case of a meeting or within 30 days of circulation of the resolution or further information, whichever is later.
But if the requisite 2/3rds for the approval of the report cannot be achieved, then the LLP liquidator must make an application to the National Company Law Tribunal for a decision.
Within 15 days after the circulation of the resolution the LLP liquidator must:
(a) Send to the Registrar, a copy of the final winding up accounts, explanations and the report in Form 10.
(b) file an application, along with a copy of the final winding up accounts, explanations and the report, in Form 89 with the Tribunal for passing of an order for dissolution of the LLP.
If the Tribunal is satisfied, then it will pass an order for dissolution within 6o days of the receipt of the application.
The LLP liquidator must then file a copy of the Tribunal’s order, within 30 days of receiving it, with the Registrar in Form 11.
Upon receiving a copy of the Tribunal’s order, the Registrar will publish a notice in the Official Gazette stating that the LLP stands dissolved.
Compulsory winding up – there may be many reasons to compulsorily close LLP:
a.) If LLP decides that it should be wound up by the ‘National Company Law Tribunal’ (an institution with the authority to judge and intervene or determine claims).
b.) If LLP has less than two partners for more than six months.
c.) If LLP is not able to pay off debts or is at the brink of getting bankrupt.
An LLP will be deemed unable to pay its debts if:
A creditor who is owed an amount by the LLP exceeding Rs.1 Lakh and demands payment of his dues and then is not paid or he has not been provided with adequate security or his debt is not restructured or compounded to his reasonable satisfaction within 21 days of receipt of the demand; or
Any decree or order of any Court or Tribunal in favor of a creditor of the LLP is not complied with wholly or partly; or
If it is proved to the satisfaction of the Tribunal, taking into account the LLPs contingent and prospective debts, that the LLP is unable to pay its debts.
d.) If LLP has acted against the interests of integrity and sovereignty of India, the security of the state or public order.
e.) If LLP has made some kind of default with the Registrar, the statement of Account and Solvency or default in Annual return (any five consecutive years).
f.) If Tribunal decides that it is just and sensible to close the LLP (with a legitimate reason).
An Application for winding up of the Company can be filed by:
The LLP or any of its partner(s).
Any secured creditor(s) including any contingent or prospective creditor(s).
The registrar or any person authorized by the Central Government in that behalf on any ground except on a grounds of interests against India.
Central Government in a case where:
The business of the LLP has been or is being conducted with an intention to defraud its creditors, partners or any other person; or
Otherwise for a fraudulent or unlawful purpose; or
In a manner oppressive or unfairly prejudicial to some or any its partners; or
That the LLP was formed for any fraudulent or unlawful purpose; or
That the affairs of the company are not being conducted in accordance with the provisions of the Limited Liability Partnership Act, 2008.
The Central or the State Governments.
A winding up petition filed by the LLP must submit the following:
Winding up petitions to be filed in Form 26 or 27 or 28 as is applicable.
A statement of affairs of the LLP on the date of the petition.
A resolution passed by 3/4ths of the total number of partners.
At the end we can conclude by saying that closing all LLP is rather a two-way process, one is when you yourself decided to do it and other when circumstances make you do it. Anyhow, there are a lot of documents involved which can make this process a little too much for many. We at LegalRaasta can help you and make this process a lot easier and quicker. Fill in the form now. Until then! Play smart and be an Entrepreneur.