Looking for legal process to close your business registered as an LLP?
A Limited Liability Partnership is an entity offering hybrid benefits to the Partners of the LLP. However, the limitations of the said entity may oblige the partners to decide about the discontinuation of the same. An ambiguous or puzzled decision by the co-founders may lead to unforeseen slowdown in the business. One of the prime reasons for discontinuation of an LLP is non-functioning after the incorporation of the Limited Liability Partnership.
The business of the LLP can be closed down by any of the following method as may be applicable:
1. Declaring the LLP as defunct
2. Winding up of LLP
2(a) Voluntary Winding up
2(b) Compulsory Winding up
In this article, we are discussing the closure of LLP by way of declaring is as defunct, where a simplified procedure is prescribed by the regulatory where an application in the prescribed form shall be filed.
Declaring LLP as defunct
Where the Partners have not carried on any business in the name of LLP for a period more than One Year since the incorporation of LLP or afterwards, an application for the purpose of striking-off the name of LLP can be made to Ministry by submission of requisite documents. Once the concerned registrar is satisfied with the application and reasonable cause for strike-off of the LLP, the registrar may declare the LLP as defunct and remove the name of LLP from the Register of the Limited Liability Partnerships.
Who can make an application?
Any Limited Liability Partnership, which has
1. Not commenced any commercial activity or operation since incorporation of LLP and the period of one year has passed; or
2. The LLP has commenced the operations however the commercial operations are ceased for a period of one year or more.
Eligibility for making application under this route:
When the Partners of the LLP are looking forward for closure of the LLP, the test of eligibility under this route shall be once confirmed before proceeding.
1. Whether the LLP has ceased its operations for a period of one year or more?
2. Whether the LLP has complied with the Annual Compliance requirements for the period up to its operations?
Check fulfillment of both conditions:
If Fulfilled: The Partners now can proceed with the application for strike-off by following the procedure prescribed below in the article.
If Not Fulfilled:
1. First Condition: Cessation of Operations:
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 any other 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.
Where the first condition is not fulfilled, the LLP cannot proceed with this option for closure. In that case, The LLP may either follow the procedure of voluntary winding up (will be covered as a separate blog) or may wait for passing of period of one year from cessation of operations.
2. Second Condition: Annual Compliance Requirement:
The partners of the Limited Liability Partnership shall take necessary steps for filing of Form 8 and Form 11 on MCA portal for the financial year(s) up to which the operations were carried on.
In addition to fulfilment of above conditions, it is to be noted that Approval of the application made in e-form 24 (application for declaring LLP as defunct) shall not be processed, if any other form is pending for approval or for payment of fee against the concerned LLP. Hence, the Partners shall wait for approval of all the previous applications made in connection of the concerned LLP.
Once the Limited Liability Partnership is considered as eligible considering the abovementioned grounds, the Partners of the LLP shall first ensure fulfilment of following requirements with the application of strike-off of the Limited Liability Partnership.
1. Closure of Bank Account: In order to file the application under this method, the bank account opened, if any in the name of LLP shall first be closed and the a letter evidencing closure of the bank account in the name of the LLP must be obtained from the Bank.
2. Obtain Consent of Parties:
2(a) Consent of all the Partners to be accorded in written in order to make an application for strike-off.
2(b) The consent for the strike-off to be obtained from the creditors of the LLP in written. Where there is no creditor in the said LLP than it is to be certified that the LLP does not have any creditor.
2(c) Where the LLP is registered with any Regulatory Authority such as RBI, SEBI, etc., a No Objection Certificate from the said regulatory shall also be obtained in order to make an application in this regards.
3. Authorisation for application: An authorisation to any of the Designated Partners shall be given to make an application for the stated purpose. The authorisation can be given by passing resolution in this regards in the meeting of Partners.
4. Preparation of Statements: A Statement of Assets and Liabilities shall be prepared, which is duly certified as true and correct by the auditor or Chartered Accountant in Practice. The statement shall disclose NIL Assets and NIL Liability. The statement shall not be earlier than thirty days of the filing of Form 24.
5. Income tax Return: An Income Tax Return shall be filed and an acknowledgement of latest Income Tax Return shall be furnished to the MCA while making an application. However, the requirement may not arise where the LLP has not commenced any operations since the incorporation of LLP.
6. Statement of undertaking or indemnity bond:
The Partners of the LLP shall furnish indemnity bonds which ensure the indemnity of any person having legal claim after the strike-off. In addition to same, duly sworn Affidavits shall be provided declaring all the information provided and statements given to be true, from all partners jointly or severally.The liability of the Partners would not be extinguished even after closure of a LLP while using Form LLP 24.
1. The applicant shall file LLP Form 24 with MCA through online portal with the requisite documents as required. (Read below about the supporting documents to be furnished)
2. Where the LLP is registered with regulatory authorities, as may be applicable, an NOC (No Objection Certificate) from the concerned authority shall also be required to be filed.
3. The registrar shall publish the content of the application filed by the LLP on its website for a period of One Month for information to general public and receive the representation on the same.
4. On expiry of the period specified above, where no reply or representation is received, the Registrar on satisfying himself for sufficient cause for closure of the LLP may pass an order to strike-off the name of the LLP from the Register of the Limited Liability Partnership.
5. Upon approval of the said application, the status of the concerned LLP shall be changed to ‘Struck off (defunct)’.
The list of documents to be furnished mandatorily for supporting the application is provided below:
• Copy of detailed application: The details contain the particulars of the LLP along with the reason for the closure of LLP.
• Copy of authority to make the application (as explained above):
• Copy of consent of all partners (explained above):
• Copy of consent of all creditors (explained above):
• Copy of the undertaking/ indemnity bond for striking off name (explained above):
• Copy of statement of assets and liabilities duly certified as true and correct by auditor/ Chartered Accountant in practice (explained above):
• Copy of acknowledgement of latest Income tax return (explained above):
• LLP Agreement along with any modifications made therein:
• Any other information can be provided as an optional attachment
The said procedure to make an application does not require any Liquidator to be appointed as in case of the procedure for winding-up. However, expertise of practising professional is required in order to make a detailed application for strike-off providing the grounds for justification along with preparation of financial statements and requisite documents as applicable in such cases.
Maintaining the active status of the Limited Liability Partnership requires regular filing of requisite documents with the Ministry of Corporate Affairs on annual basis. Apart from filings of the same, various returns filing under tax registrations such as GST Registration and any other law as applicable shall be complied with regularly. Instead of bearing this cost after compliance of non-functioning LLP, one look for the closure of the business. The way prescribed here is one of the ways to close your Limited Liability Partnership and struck-off the name of LLP from register of LLPs to save the entrepreneurs/ partners to be declared as disqualified due to non-compliance of various provision given under Act(s), as may be applicable.
As prescribed in the former part of the article, winding up is also another way to close business under LLP which may be opted when Application under this method is not possible or applicable. We shall discuss about the procedure for winding up in our next article.
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