{"id":30799,"date":"2020-04-14T19:42:34","date_gmt":"2020-04-14T14:12:34","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=30799"},"modified":"2021-01-29T17:23:04","modified_gmt":"2021-01-29T11:53:04","slug":"understanding-the-provision-regarding-strike-off-of-llp","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/understanding-the-provision-regarding-strike-off-of-llp\/","title":{"rendered":"Understanding the Provision Regarding Strike off of LLP"},"content":{"rendered":"

The Ministry of Corporate Affairs (MCA) recently amended the provision relating to the strike off of LLP. The penalties for defaulting LLP’s in filing any statutory return is quite high; therefore, it would be wise for dormant LLP’s to wind up their business. In this form, they can avoid paying penalties, and they won’t be required to file various LLP forms and Income Tax Returns<\/a><\/strong> each financial year to maintain compliance. It would be a prudent decision for the entrepreneurs to close down LLP’s that are dormant or defaulting and are accruing penalties.  <\/p>\n\n\n\n

The Ministry of Corporate Affairs\nreleased a notification on 16th<\/sup> May 2017, providing relaxation to a\nLimited Liability Partnership (LLP).<\/strong> It provided that those LLP’s that\nhas not carried of their business and has not filed any return with the\nconcerned registrar and wants to strike off the LLP, shall have to file overdue\nreturns for the years when the LLP actually worked. It means that the LLP’s\ndon’t need to file returns for the period when the business was actually not\non. However, a declaration must be provided by the designated partners with\nrespect to the closure of their business. This article sheds light on various\nquestions and queries related to the notification released by the MCA on 16th<\/sup>\nMay 2017, concerning the strike off of LLP. <\/p>\n\n\n\n

Meaning of LLP<\/h2>\n\n\n\n

Limited Liability Partnership (LLP) is an alternate form of corporate business that provides benefits of limited liability to the partners.<\/strong> It is a body corporate, and like a company or a corporation, it is also a separate legal entity. The LLP<\/a><\/strong> can enter into a contract and can acquire property<\/a> in its name.<\/p>\n\n\n\n

The\nvarious advantages of LLP’s are that it is easy to form unlike a company where\nthe process is time-consuming, the partners have limited liability, the\nownership can be easily transferred, and there is no mandatory need of an\naudit. Another benefit of LLP is that the rate of taxation on LLP is\ncomparatively lesser than that of a company. <\/p>\n\n\n\n

Does a Company need to complete Annual filings with ROC\nprior to filing an application for strike off of LLP?<\/h3>\n\n\n\n

The\nstatutory provisions regarding the strike off of LLP are given in the clause\n(b) of sub-rule 1, rule 37 of the LLP Rules, 2008. There is no provision of\nexemption for filing the e-form (LLP-8 and LLP-11) for strike off of LLP\naccording to the rules. Every LLP must complete annual filing before strike off\nof LLP.  <\/p>\n\n\n\n

However,\nwith the LLP amendment<\/a> rules, 2017, there has been some noteworthy change. The\namendment rules say that the LLP in clause (b) of sub-rule 1, rule 37 shall,\nfile overdue returns up to the end of the financial year in form 8 and form 11,\nin which the LLP ceased to carry on its business\/ commercial operations before\nfiling “strike off” form. It means that LLP’s will file overdue returns in Form\n8 and 11 till the end of the financial year in which the LLP ceased its\nbusiness or commercial operations. Therefore, under the provisions of the\namendment rules, an opinion can be made that if an LLP that is non-operational\nseeks to strike off, and then it should file form 8 and form 11 till the end of\nthe financial year in which the concerned LLP ceased to carry its business or\nits commercial operations.<\/p>\n\n\n\n

Case by Case Analysis<\/h2>\n\n\n\n

In\ncase a Limited Liability Partnership (LLP) has completed filing of e-forms\n(LLP-8 and LLP-11) till the date of strike off then there shall be no further\nquery with respect to the completion of annual filing. The LLP can then proceed\nfor strike off under rule 37 of the LLP Rules.<\/p>\n\n\n\n

In\ncase an LLP has filed the e-forms (LLP-8 and LLP-11) for end of the financial\nyear, and from the beginning of a new financial year it has neither done any business\nnor carried any commercial operations, in that case, the LLP can file an\napplication for strike off of LLP, under the amendment rule, 2017, with the\nRegistrar of Companies without the completion of annual filing forms since the\ntime it ceased to carry on its business. <\/p>\n\n\n\n

In case an LLP has not filed the e-forms (LLP-8 and LLP-11) since its incorporation, and if it wants to apply for the provision of strike off under Rule 37, in that case under the amended rules, the LLP will have to complete the annual filing up to the financial year 2012-2013. It is vital to know that the llp late filing fees for completion of filing annual forms is Rs. 100 per day up to the date of filing the form.<\/p>\n\n\n\n

There\nare two critical aspects related to this provision, firstly, that an LLP should\nbe non-operational or must not be carrying any business for at least one year\nperiod secondly, it must be noted whether an LLP had filed any annual forms up\nto the date when it stopped its business or commercial operations. <\/p>\n\n\n\n

Also, Read:<\/b> Process for Shifting of Registered Office of LLP<\/a><\/mark>.<\/p><\/div>\n\n\n\n

Does a company need to file an Initial LLP Agreement and\nany amendment in LLP agreement with the Registrar of Companies prior to filing\nan application for strike off of LLP?<\/h3>\n\n\n\n

The\nLLP rule doesn’t state any exemption from filing LLP agreement in e-form with\nthe Registrar of Companies. Hence, prior to filing an application for strike\noff of LLP, it has to file the LLP agreement with the registrar of companies.<\/p>\n\n\n\n

The\namendment rules say that the LLP shall (if entered into and not filed) enclose\na copy of initial LLP agreement along with any change in the agreement in case\nwhere the LLP has not begun its business or commercial operations since its\nincorporation. <\/p>\n\n\n\n

Therefore what it means is that under the provisions of amendment rules, an LLP can file an application for strike off of LLP without filing the e-form (LLP-3)<\/strong> with the registrar of companies if the LLP is non-operational since its incorporation.<\/p>\n\n\n\n

Case by Case Analysis<\/h2>\n\n\n\n

If\na Limited Liability Partnership (LLP) has begun its business and it forgets to\nfile the initial LLP agreement then if it desires to apply for strike off it\nhas to file the LLP-3 with the initial agreement as per the amendment\nrule.  <\/p>\n\n\n\n

In\ncase an LLP has neither begun its business nor operation since its\nincorporation and has not filed an LLP agreement and any amendment in the LLP\nagreement then the LLP, as per the amendment rule, 2017, can file an\napplication for strike off of LLP with the registrar of companies without\ncompletion of the filing of forms.<\/p>\n\n\n\n

If an LLP, that has commenced business and filed the initial agreement with the registrar of companies but failed in filing the amendment in the initial LLP agreement, wants to apply for strike off, then it has to file an amendment in initial LLP agreement<\/a><\/strong> in LLP-3 with the registrar of companies under the amendments rules. Again it’s vital to know that the late fee for completion of filing annual forms is Rs. 100 per day up to the date of filing the form.<\/p>\n\n\n\n

It\nis critical to know here whether the LLP has filed any initial LLP agreement\nand whether it has filed an amendment in the initial LLP agreement if any. In\ncase the LLP has not filed any of the two agreements mentioned above, then it\nmust be checked whether the LLP has carried any business or operations since\nits incorporation.  <\/p>\n\n\n\n

What are the ways of striking off an LLP?<\/h2>\n\n\n\n

A\nLimited Liability Partnership (LLP) can adopt the following ways to strike off\nits business:<\/p>\n\n\n\n