Close Your LLP - Overview
An LLP that hasn't engaged in business activities since its inception or has ceased operations for a year or longer can request the Registrar of Companies (ROC) to remove its name. The reasons for such closure vary, from voluntary to compulsory winding up.
The Ministry of Corporate Affairs introduced LLP Form 24 through an amendment in the Limited Liability Partnership Rules, 2009. However, closing an LLP requires meeting specific criteria.
Before initiating the LLP's strike-off, certain prerequisites must be fulfilled. This includes settling all outstanding debts, closing all LLP bank accounts, ensuring all necessary Returns (Form 8 and Form 11) are filed up to the end of the financial year in which the LLP ceased business operations, and submitting the latest income tax return before applying for closure.
Reason For Close LLP
There are a number of reasons why an LLP in India might close its doors. These reasons can be broadly categorized into internal factors related to the LLP itself and external factors beyond the LLP's control
- Some startups are just starting out with a concept, but after testing it they find that it is not profitable, so they wish to terminate the limited liability company.
- For an extended period, there is no business activity.
- The partners are unwilling to carry on with the company or partnership.
- if the project for which the LLP is registered has been finished.
- LLP has become bankruptcy.
- Following the death of the other partner, there is just one remaining partner who want to shut down the company.
- By the court's order due to any circumstance.
Major Step to Close An LLP
Dissolving a Limited Liability Partnership (LLP) involves a formal legal process to bring an end to the business entity's existence. This process is known as winding up and ensures an orderly closure, safeguarding the interests of creditors, partners, and other stakeholders. Initiating the winding-up process requires a unanimous decision by the designated partners of the LLP.
- Pass a Resolution: A resolution approved by at least 3/4 of the partners is required for closing an LLP in India.
- Form 1 Filings: Within 30 days of a resolution being passed, you have to file Form 1 with a copy of the resolution.
- Declaration of the Debt: The third step requires LLP to declare that it has no debt obligations, or if it does, that it will have enough money to pay off any obligations within a year of the winding up process starting. The majority of the partners (minimum 2) have prepared it.
- Form 4 & Value of the Assets: The fourth step involves submitting the aforementioned documents, an affidavit, form no. 4, a report detailing the LLP's asset value, and a declaration stating that the winding up is not being done to mislead anyone to the registrar within 15 days of the resolution. The Annual Compliance for the LLP, which also includes these Forms, may be read about here.
- Obtain consent from the Creditors: If there are creditors in your limited liability company (LLP), you must get their consent in the fifth step. At least half of the creditors must grant their consent.
- Filings and Appointment of Liquidator: Send in the creditors' consent within the required timeframe. Within 14 days of getting the receiving creditor's consent, you must additionally provide an advertisement in the local newspaper.
The appointment of a liquidator and the filing of a liquidator's statement in form 6 are necessary if the LLP's assets and liabilities increase.
- Finalization of the Accounts of LLP: In the sixth step, you have to prepare the finalization of the accounts and submit along with the form 9. So once form 9 has been filed, all the formalities have been completed.
Document Required for LLP closure
The documents required for closing an LLP can be divided into two main categories: mandatory documents that must be submitted in all cases, and other documents that may be required depending on the specific circumstances of the LLP.
- Application for the LLP's Closure
- Consent from each partner
- A certified statement of company accounts with no obligations and only assets, attested to by a licensed chartered accountant, must be filed no later than 30 days before the application deadline.
- An affidavit signed by each Partner, either alone or jointly
- A copy of the most recent acknowledgement of income tax return
- Initial Limited Liability Partnership Agreement and all subsequent agreements (if any)