closure of llp
Closure of Limited Liability Partnership in India
Introduction
The concept of Limited Liability Partnership (LLP) was introduced in India in 2008 under the Limited Liability Partnership Act. LLP is a business structure that combines the advantages of both a partnership and a company. It provides the benefit of limited liability to its partners, similar to a company, while maintaining the flexibility and operational ease of a partnership. However, like any other business structure, circumstances may arise where partners may consider closing down their LLP. This article discusses the closure process of an LLP in India.
Procedure for Closure
1. Dissolution by Agreement: If all partners unanimously agree to dissolve the LLP, they can initiate the closure by executing a written agreement. The agreement should include the reason for closure, the date of dissolution, and the appointment of a designated partner to carry out the closure process.
2. Dissolution by Order of Tribunal: In certain scenarios, partners may not be able to reach a unanimous decision. In such cases, any partner can approach the National Company Law Tribunal (NCLT) to seek an order for the dissolution of the LLP. The NCLT may order the dissolution if it is satisfied that the LLP is unable to pay its debts, it has ceased to carry on business, or it is just and equitable to wind up the LLP.
3. Statement of Affairs: Once the LLP is dissolved, a Statement of Affairs must be prepared by the designated partner. This statement includes details of assets and liabilities of the LLP as on the date of dissolution. The statement must be verified by an affidavit and submitted to the Registrar within 15 days of the date of dissolution.
4. Winding Up and Settlement of Liabilities: The designated partner is responsible for winding up the affairs of the LLP. They must settle the outstanding liabilities, including payment of debts and distribution of remaining assets among the partners as per the agreed profit-sharing ratio.
5. Cancellation of LLP Registration: After settling all liabilities, the designated partner must file an application with the Registrar of Companies for the cancellation of the LLP’s registration. The application should be accompanied by the Statement of Affairs, the copy of the dissolution agreement (if applicable), and other necessary documents. The Registrar will scrutinize the application and, if satisfied, issue a notice stating the dissolution of the LLP.
6. Public Notice: It is mandatory to publish a public notice regarding the closure of the LLP in at least two newspapers, one in English and one in a regional language where the LLP’s registered office is located. The notice must be published within 14 days of the date of dissolution and should state that any person having a claim against the LLP should submit the details within 30 days from the date of notice.
7. Cessation of Legal Existence: After the completion of all the above steps, the LLP ceases to exist as a legal entity. The Registrar will strike off the name of the LLP from the register and issue a final certificate of dissolution.
Consequences of Closure
a. Liability of Partners: Upon dissolution, the liability of the partners becomes limited to the extent agreed upon in the LLP agreement. The partners are relieved from any future liabilities arising after the dissolution, subject to the settlement of existing liabilities.
b. Transfer of Assets: After the settlement of liabilities, any remaining assets will be distributed among the partners as per the profit-sharing ratio agreed upon.
c. Post-Dissolution Claims: In case any claims arise after the dissolution, the designated partner should settle them out of the remaining assets. If the assets are insufficient, the partners may be individually responsible for settling the claims.
d. Taxation: LLPs are subject to various tax obligations. Even after the closure, it is important to fulfill all pending tax requirements, including filing annual returns and settling any outstanding taxes.
Conclusion
The closure process of an LLP in India involves several steps, starting from the execution of a dissolution agreement to the cancellation of registration. It is important for partners to carefully follow the procedure and fulfill all legal obligations to avoid any future liabilities. By understanding the process, partners can successfully close an LLP, settle the affairs, and move on to their next ventures.,
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