Winding Up of LLP
LLPs are newly created business entities in India, as a result of the LLP Act of 2018. If the yearly revenue of the LLP is less than Rs40 lakh or the capital investment is less than Rs.25 lakhs, the LLP is free from audit.
The Limited Liability Partnership (LLP) is a basic partnership in which all partners have limited liability due to the LLP’s legal rules and paperwork. A person must follow a certain procedure to register his or her limited liability partnership (LLP). While there are benefits to forming an LLP in India, there are also some drawbacks. Many of them are also unfamiliar with the procedure for dissolving an LLP. We’ll look at how to dissolve an LLP in India in this article.
The procedure of winding up an LLP is governed by sections 63, 64, and 65 of the LLP Act, 2008. The winding up of a Limited Liability Partnership might be done voluntarily or by a tribunal. Let’s have a look at both of them in detail.
The tribunal can dissolve an LLP.
A tribunal initiates the LLP’s winding-up for the following reasons:
- The LLP wishes to dissolve.
- For more than six months, the LLP has had less than two partners.
- The LLP is unable to pay its debts.
- The LLP has behaved against India’s sovereignty and integrity, as well as the state’s stated security and public order.
- For any five consecutive financial years, the LLP has failed to file the statement of accounts and solvency or the LLP annual reports with the Registrar.
- The Tribunal believes that winding up the LLP is reasonable and equitable.
An LLP's voluntary dissolution
With the consent of 3/4th of the partners, the LLP winding-up procedure can be started quickly. To commence the LLP liquidation procedure, the designated partners must declare that the LLP has no obligations or that the LLP will pay all debts in full within one year of the LLP’s dissolution.
In addition, the LLP partners must affirm that the LLP is not being wound up as a result of any frauds. Before making the declaration for the winding up of the LLPs, this statement of the declaration must be made along with the statement of assets and liabilities up to the most recent practical date.
Procedure for Dissolving an LLP
How Do I Close My Limited Liability Partnership (LLP)?
To begin the process of winding up an LLP, a resolution to wind up the LLP must be passed and filed with the registrar within 30 days of the resolution being approved. The voluntary winding up of the LLP must be regarded to begin on the day that the LLP’s winding up resolution is passed.
After the LLP’s resolution for winding up is filed with the registrar, the majority of Partners must sign a declaration, which must be supported by an affidavit, stating that the LLP has no debts or that it will be able to pay all debts within the time period specified in the declaration (This period should not exceed one year from the date of the commencement of winding up of the LLP).
Within 15 days of passing the decision to wind up an LLP, the following documents should be filed with the registrar, together with the affidavit signed by the majority of the Partners:
At least two partners certify to the statement of assets and liabilities for the period from the last two accounts close to the date of the LLP’s winding up.
If there are any, a report reflecting the valuer’s appraisal of the LLP’s assets is prepared.
Getting to the Bottom of the Creditors
The majority of the partners must file Form 2 indicating that they have no outstanding obligations or that they will pay them within a defined length of time, but not more than a year from the date of passing the resolution for the purpose of winding up the partnership.
The resolution will be published.
The LLP is now required to publish an advertisement regarding the resolution of the winding up in a newspaper that is circulated in the territory where the registered office is located or where the LLP’s office is registered within 14 days after passing the resolution of winding up and receiving consent from the creditors for winding up.
The LLP Liquidator is appointed.
A voluntary liquidator as the LLP liquidator is appointed with set salary once the permission of a majority of the partners is gained by the resolution. Only with the consent of two-thirds of the creditors in the LLP’s worth will the liquidator be appointed.
The creditors can also select an LLP liquidator, and in the event of an immediate appointment by the creditors and the partners, the LLP liquidator chosen by the creditors will take effect. The tribunal will appoint an LLP liquidator if the liquidator is functioning.
Liquidator's filing of a winding up petition
After the LLP’s affairs have been properly wound up, the LLP liquidator must submit a report detailing how the LLP’s affairs were wound up and how the LLP’s property was disposed of.
If two-thirds of the number of partners and creditors in value are satisfied with the LLP liquidator’s report, the partners must adopt a resolution winding up the accounts and explaining the dissolution.
The LLP liquidator must subsequently deliver the LLP winding up report to the Registrar, together with the resolution, and file an application with the tribunal.
The LLP liquidator will provide a report as soon as the LLP’s affairs are completed. Discharging the LLPs’ obligations means that the LLPs’ liabilities have been discharged, the assets have been liquidated, and the LLP liquidator will file a Form 9 report. This document details how the business was wound up, as well as the final accounting closure with a full explanation and the property that was sold. The creditors are sought for dissolution with the partners’ permission.
Finally, it may be stated that winding up an LLP is a two-way process in which one want to wind up the LLP and decides to do so, as well as other circumstances.
The Limited Liability Partnership Rules, 2009 were recently changed by the introduction of the Limited Liability Partnership Rules, 2017, which took effect on May 20, 2017. The MCA has introduced LLP 24 as an amendment form, making it easier to wind up an LLP by simply submitting an application to the Registrar for the name of the LLP to be struck off.
The procedure for winding up an LLP used to be quite extensive and onerous before the adoption of the Limited Liability Partnership Rules, 2017. However, the recent amendment has made the entire procedure more easier and simpler by introducing LLP form 24.
What happens once an LLP is wound up?
Once the winding up procedure begins, a firm is not permitted to continue doing business unless the LLP is required to complete the liquidation and distribution of assets. The corporation will be dissolved at the end of the procedure, and the LLP will effectively cease to exist.