Closing an LLP in a Variety of Ways:
Many factors might lead to the decision to shut an LLP, including inactivity or non-operation, the closure of the LLP's business, the death of significant members of the LLP, a dispute among the partners, the LLP becoming defunct, and so on. The first and most important step is to comprehend the many methods in which an LLP can be terminated. Here are three scenarios to consider.
• Deleting the LLP and declaring it defunct: When an LLP has been dormant for more than a year and has no business operations, the simplest option is to file Form 24 to request that the name of the LLP be struck out under Rule 37.
• LLP Voluntary Winding Up: With the permission of 3/4 majority of partners, the LLP may apply to the NCLT to wind up the LLP voluntarily. The Liquidator is in charge of the voluntary winding up, and he sells the LLP's assets and distributes the money to the creditors. The NCLT issues an order to wind up the LLP based on the liquidator's report and its satisfaction with the facts and circumstances.
• Compulsory Dissolution of LLP The NCLT may initiate the compulsory winding-up procedure if the LLP is unable to pay its debts to its creditors, or if any partner, the ROC, or the Government of India files an application. The NCLT appoints an LLP Liquidator to sell the LLP's assets and settle its debts, and if the NCLT is satisfied, it issues an order for the LLP's compulsory winding up.
The Advantages of Closing a Dormant or Inactive Limited Liability Partnership
1. Free of Obligation Burden: Even if the LLP does not conduct business or is inactive, it must comply with some legal requirements. Even if there is no transaction, there is no exemption from completing TDS or GST reports; similarly, annual compliance, such as filing ITR, Form 11 and Form 8 with the ROC, is required. Any failure in these areas carries a severe cost. An LLP that does not plan to do business gets relieved of its compliance burden by closing it.
2. Save Money on Compliance: As previously stated, even if the LLP does not do business, it is required by law to file certain returns. There is a significant cost associated with the professional fee for doing several compliances. If a compliance deadline is missed, For each day of lateness, a fee of Rs. 100 would be imposed. As a result, in these situations, shutting an inactive LLP is always a prudent move that will save money in the long run.
3. Move on with Your Life: Creating an LLP is always done in the hopes of making it big, but not everything goes as planned. It is possible for business decisions to be made incorrectly. As a result, if the plans aren't working out or the team that embarked on the journey together doesn't seem to be on the same page, it's always preferable to end the LLP and move on with your life.
Checklist for an LLP To be eligible for closure:
You must meet certain criteria mentioned below for striking of an LLP:
• The LLP that is being closed down should not have started doing business after it was formed.
• For the past year, the LLP that will be closed has not done any business.
• There are no assets or liabilities in the LLP that will be closed.
Procedure for Striking off of an LLP
• The LLP's bank account should be closed
• Sell whatever assets you have and pay off any liabilities you have
• Obtain all partners' written consent to strike off
• Preparation of the necessary documentation for the LLP's closing
• Submitting Form 24 to the Registrar of Deeds.
Once the LLP has sent the E-form 24 to the relevant jurisdictional Registrar, it must wait for clearance from the Registrar to determine whether all papers attached to the forms are correct. For his satisfaction, the Registrar may request any more documentation. Once the Registrar is pleased, he will transmit the LLP's name to be published in the official gazette with a request for public comment. If no objections are received, the Registrar will remove the LLP's name from the register.
Finally, we can state that closing all LLPs is a two-step procedure, one in which you decide to do so and the other in which circumstances force you to do so. In any case, there are a lot of documentation to deal with, which can make this procedure a little overwhelming for some.
Frequently asked questions:
1. Which date should be used to calculate the end of a business?
The date on which the Limited Liability Partnership ceased to perform its revenue-generating company is known as the date of cessation of commercial operation, and any subsequent transactions, such as receiving money from debtors or paying the money to creditors, are not regarded revenue-generating business.
2. Is it necessary to file an up-to-date annual filing in order to close an LLP?
Annual filing forms such as form 8 and 11 must be completed up to the date of the financial year in which the LLP ceases to carry on business or operation, according to the LLP Amendment Rules, 2017. For example, if an LLP discontinued operations on August 31, 2018, Forms 8 and 11 must be completed for the fiscal year 2018-19.
3. What happens if the Initial LLP Agreement isn't completed?
If the initial agreement is not filled and the LLP has been inactive since incorporation, an application for strike off may be filed if the LLP Agreement is filled at the time of strike off; however, if the LLP has begun business and the LLP Agreement is not filled, the LLP must file an LLP Agreement in Form 3 before filing an application for strike off.
4. What happens if the income tax return isn't completed?
According to the LLP Amendment Rules of 2017, income tax returns must be filed up to the end of the financial year in which the LLP ceased to do business or operate. If an LLP has not started doing business since its formation, no IT return is necessary, and the LLP can petition for strike off directly.
5. Who must sign the application for a defunct LLP's closure?
The designated partners must sign the application for the closure of a defunct LLP, along with the approval of the other partners, if the LLP is to be closed.
6. What are the requirements for closing an LLP?
Any LLP that has been inactive for one year or has been incorporated for one year and has no business can request for closure under the FTE system.
The LLP's Form 11 and Form 8 filings must be current; otherwise, the ROC may reject the LLP's closure.
7. What documents are necessary for the LLP's closure?
Partners Meeting Resolution for Closure, Consent of Partners, Partners' Affidavit, Indemnity Bond, Statement of Assets and Liabilities, Application for Striking Off of the LLP.
8. Is it possible to close an LLP that has assets and obligations on its books of accounts?
After dispersing assets and completing payments for all liabilities, the law requires you to close the books of accounts first. A practicing chartered accountant must certify the final statement for nil assets and liabilities.
9. Which LLPs are eligible to file a strike-off application?
Any LLP that has discontinued operations or has not started doing business since its formation might ask to be struck off. A one-year term from the date of incorporation is required in both cases.