How to Close an LLP? Procedure related to Winding up of LLP

LLP Winding up procedure has been simplified by the MCA. In this article, we will understand the meaning of LLP and will discuss the winding-up of LLP.

What is an LLP?

Limited Liability Partnership, also called LLP, is a new form of business entity that was introduced in the year 2008 through the LLP Act. It has the benefit of company and partnership. It is a partnership where some or all partners have limited partnership.

Winding up of LLP

A Limited Liability Partnership being an artificial person cannot die a natural death. It comes into existence through legal proceedings and hence ceases to exist in the same manner.

Winding up means closing up of a company’s concerns, which may be by reason of insolvency or otherwise, by the realization of assets, payment of liabilities and distribution of surplus, if any, amongst the partners of LLP.

The winding up of an LLP may be either Voluntary or by Tribunal and LLP, so wound up may be dissolved.

Dissolution is an event wherein the name of LLP is removed from the register of LLP’s and the fact is notified. Dissolution puts an end to the existence of a company.

Reasons why LLP Winding-Up is required

The reason behind winding up an LLP could be various. Some of them include the following:

1. To avoid compliance and filing responsibilities for the LLP’s which are not active.
2. To avoid fines and penalty for late filing, it is better to officially Wind up LLP’s which are inactive.
3. When compared to maintaining compliance for Dormant LLP, it might actually be cheaper to Wind Up and incorporate again when the time is right.
4. It makes things easy for inactive LLP’s that have NIL assets and liabilities to close down or Wind Up.
5. When the LLP is not in a position to pay its debts.
6. Where the LLP has acted against the interests of the integrity and the sovereignty of India.
7. Where a tribunal believes that it is equitable and just that the LLP should wound up.

Modes of Winding Up of LLP

There are two ways under the LLP Act of 2008 to windup the LLP:

• Voluntary Winding Up of LLP

Under this, partners can decide between themselves to stop and wound up the operations of the LLP.

LLP may initiate winding up voluntarily. They must pass a Partners resolution to wind up the LLP with the approval of at least three-fourths of the total number of Partners. If the LLP has lenders, secured or unsecured, then the approval of the lenders would also be required for winding up of the LLP by adopting the following procedure:

1. Passing of Resolution
2. Declaration of solvency by designated partners
3. Approval of Creditors
4. Publication of Resolution
5. Appointment of Liquidator
6. Preparation of Final Report by the Liquidator
7. Passing on Dissolution Order

• Compulsory Winding Up of LLP

The firm may also wound up by the order of the Tribunal/court and this kind of winding up is known as Compulsory Winding up. The circumstances in which Limited Liability Partnership may wound up compulsorily are:

1. Where for a period of more than six months, the number of partners of LLP is reduced below two;
2. LLP is unable to pay its debts;
3. LLP has acted against the interests of the sovereignty and integrity of India, the security of the State or public order;
4. LLP 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
5. Tribunal is of the opinion that it is just and equitable that the LLP be wound up.

LLP Winding-up Procedure

The winding up procedure of LLP is provided below:

1. The petition or an application for winding up of an LLP could be filed with the tribunal by the LLP itself or by any of its partner(s) or creditor(s) or by the Registrar or by Central Government or by a person authorized by Central Government.
2. The tribunal is empowered with the special powers that can be exercised by the Tribunal as per his discretion on presentation of the petition.
3. Once the petition for winding up of the LLP, has been received by the Tribunal, it fixes a date for its hearing and issues notice to the LLP to appear and justify its position and the Tribunal gives a public notice in order to inform everybody, particularly, the creditors and the partners, about winding up so that their concerns or objections could also be considered.
4. The petitioner and the LLP shall ensure that a certified copy of the winding-up order has been filed with the ROC so that the Registrar could notify the fact in the Official Gazette.
5. The winding-up order serves as a notice of discharge to all the employees and officers of the concerned Limited Liability Partnership.
6. No suit or legal proceedings can be commenced against the LLP without the leave of the court. Even a suit, which is pending against the LLP at the date of winding up the order, cannot be preceded unless the permission of Tribunal is obtained.

Effect of Winding Up of LLP

Once the winding-up process has begun, a company can no longer pursue its business, except in order to complete the liquidation and distribution of its assets. At the end of the process, the company will be dissolved and will effectively cease to exist.

Declaration of Dissolution of the LLP by the Registrar

The Registrar  may, by  notice  in  writing,  declare  that  the  LLP  is dissolved if:

1. There is no objection received from any partner or creditor of the LLP;
2. The objection to the proposed dissolution of LLP was subsequently withdrawn; or
3. The Registrar is the view that the objection to the proposed dissolution is without justification.

The declaration of dissolution of the LLP shall only take effect upon such notification is given to the Registrar and the LLP cannot be used by the court after liquidation.

Conclusion

For more information on LLP and winding up of LLP, you are advised to go through the LLP Act 2008^[1] and Limited Liability Partnership (Winding up and Dissolution) Rules, 2010. 

Read our article:Special Notice Resolutions: Resolutions Requiring Special Attention