Winding Up – LLP

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Winding Up of a Limited Liability Partnership (LLP) in India: A Comprehensive Guide

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Limited Liability Partnerships (LLPs) emerged as a distinctive business entity with the enactment of the LLP Act in 2008 in India. Enjoying the benefits of limited liability, LLPs are subject to audit exemption if their annual turnover is below Rs. 40 lakh or capital contribution is less than Rs. 25 lakhs. While LLPs offer advantages, there are instances where winding up becomes necessary. In this guide, we delve into the process of winding up an LLP in India, exploring both voluntary and tribunal-initiated methods.

Understanding the Winding Up of an LLP: A Legal Framework

The winding-up process of an LLP in India is regulated by Sections 63, 64, and 65 of the LLP Act, 2008. Winding up can be either voluntary, initiated by the LLP itself, or compulsory, initiated by a tribunal under specific circumstances. Let’s explore both avenues.

A. Winding Up of an LLP by the Tribunal

The tribunal can initiate winding up if:

  • The LLP expresses the intent to wind up.
  • The LLP has fewer than two partners for more than six months.
  • The LLP is unable to pay its debts.
  • The LLP acts against the interest of India’s sovereignty, integrity, or public order.
  • The LLP fails to file financial statements or annual returns for five consecutive financial years.
  • The tribunal deems it just and equitable for the LLP to wind up.

B. Voluntary Winding Up of an LLP

Voluntary winding-up can be initiated with the approval of 3/4th of the partners. The designated partners must declare that the LLP has no outstanding debts or will settle them within one year from the commencement of winding up. Fraudulent intent must be disclaimed, and a valuation of relevant assets should be submitted if applicable.

Procedure to Wind Up an LLP: Step by Step

  • Resolution for Winding Up: Pass and file a resolution for winding up with the registrar within 30 days of approval. The commencement of voluntary winding up is deemed from this date.
  • Declaration by Partners: Majority partners must declare, verified by an affidavit, that the LLP has no debts or can pay them within the specified period (not exceeding one year).
  • Filing Documents with Registrar: Within 15 days of passing the resolution, file:
    1. Statement of assets and liabilities attested by at least two partners.
    2. Valuation report of LLP assets if applicable.
  • Winding Up with Creditors: Majority partners must file Form 2, declaring the absence of unpaid sums or commitment to clear debts within a specified period, not exceeding a year.
  • Publication of Resolution: Publish a winding-up resolution advertisement in a local newspaper within 14 days of passing the resolution.
  • Appointment of LLP Liquidator: Upon approval from the majority of partners, appoint an LLP liquidator with fixed remuneration. The liquidator’s appointment requires the consent of 2/3rd of the creditors by value.
  • Filing of Winding Up by a Liquidator: After fully winding up affairs, the LLP liquidator prepares a report. If two-thirds of partners and creditors approve, file a resolution for winding up with the registrar and apply to the tribunal.
  • Dissolution: After approval, the LLP liquidator submits a report (Form 9) detailing the winding-up process and property disposition. Dissolution is sought upon partners’ and creditors’ consent.

What Happens After the Winding Up of an LLP?

Upon initiating winding up, an LLP is barred from conducting business unless it pertains to completing liquidation and asset distribution. The company is dissolved, and the LLP ceases to exist upon completion of the process.

Striking Off LLP: A Simplified Approach

The Limited Liability Partnership Rules, 2009, underwent a significant amendment with the introduction of the Limited Liability Partnership Rules, 2017, effective from May 20, 2017. This amendment introduced LLP Form 24, streamlining the LLP winding-up process by allowing the registrar to strike off the LLP’s name.

Prior to this amendment, winding up an LLP was a lengthy and cumbersome procedure. The introduction of LLP Form 24 under the new rules has simplified the entire process.

Post-Winding Up Scenario

Once the winding-up process commences, an LLP cannot engage in regular business activities. Its sole focus is on completing liquidation and distributing assets. At the conclusion of the process, the company is officially dissolved, and the LLP ceases to exist.

In conclusion, winding up an LLP is a nuanced process with options for voluntary or tribunal-initiated methods. The choice between the two depends on various factors, including the LLP’s financial standing and the partners’ consensus. The amended rules introduced in 2017 have significantly streamlined the winding-up procedure, making it more accessible and efficient for LLPs in India.