Closure of LLP
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Closure of LLP - Overview
A Limited Liability Partnership (LLP) is a partnership formed and incorporated under the Limited Liability Partnership Act, 2008. It is a legal entity where each partner’s liability is limited to the amount they invest in the business.
Closure of an LLP involves striking off its name from the register. This process occurs when an LLP becomes defunct, meaning it is no longer operating. The registrar, after following the prescribed procedure, will close the LLP. An LLP is considered defunct if it has not conducted business for one year or more, or if it has not commenced business within one year of incorporation. Before the LLP can be struck off, all partners must settle the LLP’s assets and liabilities.
Section 75 of the LLP Act, 2008 provides that if the registrar has reasonable cause to believe an LLP is not carrying on business or operations according to the act’s provisions, the LLP’s name may be struck off from the register. Rule 37 of the LLP Rules, 2009 details the closure process for an LLP.
Conditions to be Satisfied before Closing LLP
Before closing an LLP, it is necessary to ensure the following conditions are met:
- The LLP has not commenced its business or has no business operations for one year or more.
- It has no assets and liabilities at the date of filing Form 24.
- All partners have consented to the closure.
- The LLP has filed all overdue returns in Forms 8 and 11 up to the end of the financial year in which it ceased operations.
Documents Required to Close the LLP
Subrule (1A) of Rule 37(1) of the LLP Amendment Rules 2017 states that Form 24 must be accompanied by:
- Statement of Account: A statement disclosing nil assets and liabilities, certified by a practicing chartered accountant, made up to a date not earlier than thirty days before filing Form 24.
- Affidavit: An affidavit signed by the designated partners, jointly or severally, confirming:
- The LLP has not commenced business or ceased business from a specific date.
- The LLP has no liabilities and indemnifies any arising liabilities after striking off.
- The LLP has not opened any bank accounts, or if it did, those accounts are now closed, with certificates or statements from the respective banks.
- The LLP has not filed any Income Tax Return if it hasn’t conducted business since incorporation.
- Income Tax Return: Copy of the latest Income Tax Return filed under the Income Tax Act, 1961, if applicable.
- Initial LLP Agreement: Copy of the initial LLP agreement and any changes if the LLP hasn’t commenced business or commercial operations since incorporation.
Additional Documents Required from Partners
- Permanent Account Number (PAN): Of all LLP partners.
- Aadhaar Number: Of all LLP partners.
- Latest Address Proof: Of all LLP partners.
Method or Procedure of Closing an LLP
Rule 37 of the Limited Liability Partnership Rules, 2009 states that an LLP not carrying on business or operations for one year or more can apply to the Registrar to strike off its name from the register. The application must be filed in Form 24 with the consent of all LLP partners to the appropriate jurisdictional registrar.
Step-by-Step Procedure to Close an LLP
- Pass a Special Resolution: Partners should give their consent for the closure of the LLP in a meeting.
- File Form 1: Submit Form 1 along with the special resolution to the Ministry of Corporate Affairs (MCA) within thirty days.
- Debt Declaration: At least two partners must declare that the LLP has no debt or that any debts will be settled within one year.
- File Form 4: Submit Form 4 along with a report showing the value of all LLP assets. Include a declaration that the closure is not intended to defraud anyone.
- Creditors’ Consent: Obtain consent from all or at least two-thirds of the creditors regarding the LLP’s closure.
- Appoint a Liquidator: Appoint a liquidator and file their statement with the MCA in Form 6 within 14 days of receiving creditors’ consent.
- Finalize Accounts: Finalize the LLP’s books of account and submit them to the MCA in Form 9.
- File Form 24: Submit the application to close the LLP in Form 24 to the Registrar along with the required documents.
- Publication of Notice: The Registrar will publish the application content on the website for one month.
- Strike Off: Within one month, the Registrar will remove the LLP’s name from the register and publish a notice in the Official Gazette to legally close the LLP.
FAQs
The date of cessation of commercial operations is when the LLP stopped generating revenue through business activities, including transactions such as receiving payments from debtors or making payments to creditors. Subsequent transactions after this date do not constitute revenue-generating business operations.
According to the LLP Amendment Rules, 2017, annual returns in forms 8 and 11 must be filed up to the end of the financial year in which the LLP ceased its business or operations.
The application in Form 24 must be signed by the designated partners of the LLP. Additionally, consent from all other partners is required before filing the application.
No, the LLP cannot be closed if there are assets, liabilities, or any bank balances on the date of filing the application in Form 24. The LLP must have no assets or liabilities to qualify for closure.
No, the registrar does not issue a certificate of closure for LLPs. Once the application is approved, the status of the LLP will change to “under the process of striking off.” Within one month thereafter, the registrar will strike off the LLP’s name from the register.
