If an LLP wishes to go out of business or has been inactive for more than one year, it may apply to the Registrar to declare the LLP dissolved and remove the LLP’s name from the LLP’s Register. In this article, we have explained all about processing LLP strike-off/LLP proceedings in India.
What is an LLP?
LLP means an alternative form of legal entity that offers the benefits of the limited liability partnership of a legal entity and the flexibility of a partnership. LLPs can survive regardless of partner changes. She can enter into contracts in her own name and retain her property.
The LLP is a separate legal entity and is responsible for all its assets, but the partners’ liability is limited to their agreed-upon contributions to the LLP.
In addition, individual partners are shielded from joint and several liability arising from bad business decisions or wrongdoings of other partners, as no partner is liable as a result of the other partner’s actions unilaterally or without authorization. The mutual rights and obligations of the partners within an LLP, as the case may be, are governed by agreements between the partners or between the partners and the LLP. However, the LLP is not relieved of its other obligations as a separate entity. Since an LLP includes elements of both a “company structure” and a “gomei company structure,” it can be said that an LLP is a hybrid between a company and a partnership company.
Striking off of LLP made easy
By introducing the Limited Liability Partnership (Amendment) Regulations 2017 effective May 20, 2017, the Department of Enterprises recently amended the Limited Liability Partnership Regulations 2009. This change allowed the MCA to introduce LLP Form 24 to close an LLP simply by submitting a request to the registrar to remove the LLP’s name.
Ways of Striking off LLP
An LLP can strike off its business by adopting any of the following two ways:
- A) 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) Winding up of LLP:
It is a process where all the assets of the business are disposed off to meet the liabilities of the same and surplus any, is distributed among the owners. The LLP Act 2008 provides for 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 be wound up.
Process of Strike off of LLP
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 of Companies for declaring the company as defunct and removing the name of the LLP from its register of LLP’s. The LLP’s name may be removed by the registrar or the LLP on eForm 24 with the consent of all partners.
Upon receipt of the application, the registrar shall notify the limited liability partnership and all of its affiliates of its intention to deregister the LLP’s name and send a declaration within 30 days along with copies of relevant documents. I request you to Number of days from notification date.
In the absence of negative comments from the LLP Partner or the public after the deadline specified in the notice, the registrar may, if satisfied, remove her LLP’s name from its registry and publish a notice in the Federal Register. I can.
Documents required for Closing an LLP:
To strike off the name of the LLP, an application is required to be made in e-Form 24 with following below mentioned documents:
A statement of account disclosing nil assets and nil liabilities, certified by a Chartered Accountant in practice made up to a date not earlier than thirty days of the date of filing of Form 24.
Copy of acknowledgement of latest Income tax return- Self Explanatory
Copy of the initial limited liability partnership agreement, if entered into and not filed, along with changes thereof
An affidavit signed by the designated partners, either jointly or severally, to the effect:
That the Limited Liability Partnership has not commenced business or where it commenced business, it ceased to carry on such business from ………….(dd/mm/yyyy);
That the limited liability partnership has no liabilities and indemnifying any liability that may arise even after striking off its name from the Register;
That the Limited Liability Partnership has not opened any Bank Account and where it had opened, the said bank account has since been closed together with certificate(s) or statement from the respective bank demonstrating closure of Bank Account;
That the Limited Liability Partnership has not filed any Income-tax return where it has not carried on any business since its incorporation, if applicable.
Copy of Detailed Application- Mention full details of LLP plus reasons for closure
Copy of Authority to Make the Application- Duly signed by all the Partners.
Before the introduction of the Limited Liability Partnership (Amendment) Rules, 2017, the procedure for winding up an LLP used to be long and cumbersome. However, with the introduction of LLP Form 24, the procedure has been made easy and simple. Therefore, for entrepreneurs with dormant or defaulting LLPs facing penalties, it is best to take this opportunity to close their LLPs.