Closing a Limited Liability Partnership (LLP) involves a series of steps and legal requirements to ensure proper dissolution and closure of the business entity. Whether due to restructuring, financial difficulties, or other reasons, understanding the LLP closure procedure is essential for partners looking to wind up their operations. Here’s a comprehensive guide to navigating the process:
Board Resolution: The first step in closing an LLP is to convene a meeting of the partners to pass a board resolution proposing the closure of the LLP. This resolution should be approved by a majority of partners and documented in the LLP’s records.
Appointment of Liquidator: Upon passing the resolution for closure, the LLP must appoint a liquidator to oversee the winding-up process. The liquidator can be a partner or an external professional, such as a chartered accountant or company secretary. Their role is to manage the affairs of the LLP during the liquidation process, including the realization of assets and settlement of liabilities.
Notification to Registrar of Companies (RoC): The LLP is required to file a notice of resolution with the RoC within 30 days of passing the resolution to wind up the business. This notice should include details of the appointed liquidator and the reasons for dissolution.
Advertisement in Gazette and Newspaper: The LLP must also publish a notice of its intention to dissolve in the Official Gazette and a local newspaper circulating in the area where the LLP’s registered office is located. This advertisement serves to inform creditors and other stakeholders about the LLP’s closure.
Settlement of Liabilities: The liquidator is responsible for identifying and settling all outstanding liabilities of the LLP, including debts to creditors, employees, and statutory dues. They must also realize the LLP’s assets and distribute the proceeds among creditors and partners as per the LLP agreement.
Filing Final Accounts and Returns: Once all liabilities have been settled and assets distributed, the liquidator must prepare final accounts and returns of the LLP’s financial affairs. These documents, along with a declaration of solvency, must be filed with the RoC within three months of the LLP’s dissolution.
Dissolution: After completing all necessary formalities and obtaining clearance from creditors and the RoC, the LLP can apply for its dissolution. The RoC will review the application and, if satisfied, issue a certificate of dissolution, officially closing the LLP.
Cessation of Business Operations: Throughout the dissolution process, the LLP must cease all business operations and activities. Any remaining assets should be disposed of, and any remaining funds should be distributed among partners according to their profit-sharing ratios.
Reasons to Close an LLP
LLPs must be closed in accordance with the LLP Act where the designated partner is subject to significant penalties and prosecution if the LLP’s due returns are not filed on time. Here are few reasons to close an LLP:
The costs of keeping an LLP are higher than the costs of dissolving it
To avoid fines and penalties for late filing
The LLP is either unable to pay its bills or is on the verge of bankruptcy. For any five consecutive financial years, the limited liability partnership fails to file its annual returns
The LLP is incompatible with India’s integrity and sovereignty, security of state and public order.
Conditions
LLP has been inactive for at least one year or has been inactive since its formation
As of the date of application, LLP has no assets or liabilities and its current account has been closed
LLP obtain the parties’ consent, including any other authorities, creditors, and partners
Form 24 should be filled with ROC indicating no debts of the company and its ability to pay debts.
Documents Required for Closing an LLP
PAN Card, Aadhaar Card, and latest address proof of partners
Consent letter- signed by all the partners.
Closing an LLP is a complex legal process that requires careful planning and adherence to statutory requirements. By following the prescribed LLP closure procedure diligently and seeking professional guidance where necessary, partners can ensure a smooth and compliant wind-up of their business entity. Closing an LLP is a crucial process that must be done in accordance with the LLP Act. Failure to do so can result in penalties and prosecution for designated partners. For more legal information, visit IConnect.