Overview of Closing a Limited Liability Partnership
The penalty for failing to file any statutory return for LLPs is Rs.100 per day, without any overall cap. Therefore, it is also best to windup dormant LLPs so that each financial year there is no need to file LLP Form 11, LLP Form 8 and Income Tax Return for the LLP to maintain compliance and escape punishment.
With an amendment to the Limited Liability Partnership Law, 2009, the Ministry of Corporate Affairs introduced LLP Form 24. The appeal for the closure of the LLP, however, is geared against particular requirements. Limited Liability Partnership (LLP) is a general business form in which there are limited duties per co-worker. An LLP is a company that supports unique legal sessions and papers. There is a pre-defined form in which your LLP can be designated or closed. There are some advantages to being in an LLP, but there are still some demerits at the same time.
The process for winding up an LLP used to be lengthy and tedious until the adoption of the Limited Liability Partnership (Amendment) Regulations (2017). However, the process has been made simple and clear with the implementation of LLP Form 24.
Documentations to Close an LLP
- The LLP may not have been engaged in its occupation or commercial services for a period of one year or more.
- A record of the account issuing zero assets and liabilities shall be given for a period not exceeding thirty days from the date of filing accepted by the Chartered Accountant.
- There is no need for the LLP to own any commitments and properties.
- An current bank account does not need to be kept by the LLP. In the event that the bank account has been released, the document must be closed and the bank's comment or certificate must announce the closing of the bank account to be carried out.
- For implementation, all partners should have permission.
- All appointed partners shall be required to make a declaration of fact, and the Indemnity Bond shall be entitled to reimburse any liability that may arise after the Registrar has signed the name.
- Evidence of the last return on income tax recorded by the LLP if the LLP manages any corporation and has issued those returns
- The acceptance letter notes that owing to all the lenders, the LLP has no responsibility or charge.
- Any pending IT returns for the current financial year are filed externally.
- Photographs of all the nominated partners on the PAN card
- Evidence from Aadhar of all the partners
- Copy of an agreement with LLP;
- Permanent address of all the participants and associates
Checklist to be prepared for closure for LLC Specifications
- The LLP that should be closed should not have started business after incorporation.
- The LLP to be shut down has not been involved with any organization for the past year.
- There are no assets or liabilities for the LLP to be closed down.
How to close India's LLP
Step 1: Settlement
A clear resolution must be passed by both or 3⁄4 of the company's shareholders, agreeing to dissolve the relationship.
Step 2: Form No. 1
Form No.1 shall be submitted with the Ministry of Corporate Affairs (MCA) with a copy of the resolution within 30 days of the resolution being passed, and
Step 3: No Declaration of Debt
At least two of the LLP's members must announce that they do not have debts or liabilities. Or if it does, within one year from the start of winding up, it will be settled.
Step 4: Form 4 & Value of Assets
Form No. 4 along with a report of the value of LLP’s assets has to be submitted to the registrar within 15 days of filing the forms and a statement declaring that the LLP is not being closed to cheat anyone.
Step 5: Creditor Consent
The next step is to acquire consent from the creditors of the LLP, to wind up the business. For this purpose, at least ⅔’rd of company creditors have to provide consent.
Step 6 – Filing Form 6
Within 14 days of receiving consent from creditors, an advertisement has to be filed in the local newspaper. In case if the LLP has assets or liabilities, a liquidator is appointed and his/her statement needs to be filed using form 6.
Step 7: Filing Form 9
Prepare the LLP’s final account statement, and submit them along with form 9 to conclude all formalities.
MCA announced new guidelines for the liquidation of businesses
3-Jun-2020: The Companies (Winding Up) Rules 2020 have recently been informed by the Ministry of Corporate Affairs (MCA). As of 1 April 2020, these new rules have become applicable. These guidelines aim to make the closing process easier for smaller businesses without the tribunal's intervention. These regulations will, however, only apply to those types of companies referred to in Section 361 of the Companies Act, 2013.
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Frequently Asked Questions
If the LLP meets the following requirement, it can file a request to delete its names from the LLP registry:
- The LLP must have a PAN
- The LLP should be inactive for a period of at least one year or, from the time of incorporation, not operational.
- At the time of application, no live bank account should be given.
- The latest IT returns should have been filed by the LLP.
When the LLP is inoperative for at least one year from the date of incorporation or inactive, and when the LLP does not have any assets/liabilities as of the date of application.
- Business operations closure- When you intend to close the LLP, you must close the existing business operations first.
- Close the bank account- Until company activities are closed,
- Preparation of the closing statement of accounts-Closing the statement of accounts is the next step.
- ROC-LLP Application Form 24- At this point, LLP partners are required to file an application with the registrar, along with an affidavit and fees, with the consent of both partners.