Cost of Closing an LLP in India

  • Setindiabiz Team
  • April 12, 2024
Cost of Closing an LLP in India

The LLP closure means officially winding up all its operations. The need for LLP closure arises due to ample reasons; financial limitations, less lucrative or goal of business achieved, merger into a different business, etc. The LLP closure fees may vary from conditions and methods applicable for its winding up. Get to know more about closing an LLP firm in India along with their fees, process, and required documents, in this blog!

BRIEF SUMMARY

LLP Closure in India: An Overview

Closure of LLP simply means to strike off an LLP’s name from the Registrar of Companies (ROC) as this partnership entity has stopped its operation completely or no longer wants to carry out its business/operations. Limited Liability Partnership (LLP) is one of the most preferred business frameworks in India due to its features like flexible legal & tax entity and personal assets protection.

Cost of Closing an LLP in India

LLPs may be closed due to a number of reasons mainly financial restrictions, disagreement among partners on aspects essential for operations, less lucrative or purpose of business achieved, merging into any other business, etc. The LLP closure fees may vary depending upon the selection of the method of striking off an LLP. LLP Closure can be filed either by a voluntary winding up or compulsory winding up.

Failing to file LLP Closure form can attract penalties, fines, and some legal actions. LLPs that don’t file any statutory return have to face a penalty of Rs. 100 per day with no maximum limit. Therefore, it is often better to wind up dormant or inactive LLPs to avoid various compliance requirements, fines, or any other legalities.

LLP Closure Fees in India

The LLP closure fee in India can vary depending on a number of factors mainly the capital of LLP, closure date, any outstanding compliances, etc. The total LLP Closure fee includes government fees and professional fees. In which, the government fee is Rs. 10,000 while the professional fee may vary depending on document processing & auditing (notary & stamp paper) requirements, the process of closure, charges of the CS or firm, and a few other factors.

Documents Required for winding up LLP

Similar to the incorporation of an LLP, several documents are also required while filing for the closure of such partnership businesses. In order to initiate filing for LLP closure process, the documents required are listed below;

  • Consent from all partners 
  • Statement of Company Accounts verified by a practicing Chartered Accountant (CA), showing nil assets and liabilities. The statement should not be older than 30 days prior to the date of application filing. 
  • Affidavit and Indemnity Bonds executed; separately or jointly by all partners  
  • Copy of the latest Income Tax Return acknowledgement 
  • Initial LLP Agreement and any supplementary agreements    
  • ID and Address Proofs of all Partners 

LLP Closure Benefits

If an LLP is incorporated but has been in dormant mode, it is often advisable to apply for its closure. Even if an LLP has not been in operative mode for more than a year, it is not exempted from filing annual returns and statutory compliances. Some main LLP closure benefits are described below;

Form DIR 3 KYC

  • Freedom from Annual Compliances: Though an LLP is in dormant mode or inactive, it has to file annual returns and compliances. Filing annual compliances costs higher than filing for closure of LLP. It is mandatory to file annual compliances each year while giving an application for LLP closing is a one-time process. Filing for an LLP closure form sets you free from essential annual compliances that partners need to follow each year. 
  • No risk of non-compliance: Upon the successful filing for closing LLP form, partners are free from any kind of risk or penalty that arises due to non-filing of annual compliances. 
  • Devoting time to a meaningful task: Putting a halt on annual compliances by applying for closure of LLP, you can invest your valuable time into your new venture instead of getting involved in detangling annual returns and compliance filing

Conditions for Closure of an LLP

In certain conditions, LLPs are eligible for filing for closure or striking off their name from the register. LLP strike-off can only be initiated if the following conditions are fulfilled;

  • An LLP has not started operating from its incorporation date or has been inactive for more than a year.  
  • LLP has nil assets and liabilities on the date of application.      
  • All the Bank Accounts of the LLP have been closed.
  • LLP has obtained consent from all the partners, creditors, and other authority

Process for LLP Closure

An LLP winding up process involves several steps that need to be followed in adherence to the statutory regulations. Sticking to the process of closing an LLP helps attain llp closure approval quickly. The process for filing for winding up LLP goes as below;

  • Obtain Consent from All Partners : Call for a meeting of all the partners and obtain partners consent for executing an application to strike off the LLP.
  • Sell Assets to Clear Debts : Before applying for striking off the LLP name, make sure to sell any remaining assets of the LLP and pay all the liabilities. The assets and liability of the LLP should be nil. 
  • Close All Bank Accounts : Make sure to close all bank accounts in the name of LLP before the filing date. It’s also necessary to obtain a closure certificate from the banker. 
  • Arrange necessary documents : It’s essential to arrange all the required LLP Closure documents. Make a checklist of those documents before initiating documentation. Affidavits from the partners; jointly or separately, must also be prepared. Moreover, the partners are also required to enter into an Indemnity bond stating that the partners shall be personally liable for any future liability. 
  • File Form 24 : The prescribed Form 24 eventually needs to be filed to ROC for striking off the LLP name. This form must be signed digitally along with uploading supportive documents. On the final submission of Form 24, wait for the approval from ROC. Post verification of the uploaded documents and information, MCA will send a notification of striking off the name from the register.

Different methods to close an LLP

The methods of closing an LLP also play a crucial role in defining LLP Closure fees/charges. Navigating differences between striking off and winding up an LLP can make you aware of different methods of closing an LLP and their charges. The key differences between striking off and winding up an LLP are as below

Winding Up

In Winding Up, the LLP is closed permanently and can’t be restored in due course. The appointed liquidator sells the assets of the LLP to pay off its liabilities. Nobody is held responsible for the unpaid debts that couldn’t be satisfied during liquidation. As a result, an LLP gets winded up completely.

Striking Off

Striking off the LLP is a process depending on the declaration of the partners of the LLP. The process needs no official liquidator. As per the affidavits and an indemnity bond by the partners outlining that they shall be personally responsible for any future liability that occurs even after striking off the name of the LLP. Due to the effect of striking off, LLP doesn’t have to follow any compliance requirements as it has been closed for all practical purposes.

If an LLP has been inoperative for over a year, it can apply for its closure by submitting Form 24. Filing the winding up LLP form involves providing essential information along with attaching supportive documents. Explore the aforementioned piece of writing to take a deeper insight into LLP Closure fees, document format, and benefits associated with the closure of an LLP. Complying with the LLP Closure form and supportive documentation helps close an LLP in India and set yourself free from the burden of annual compliance & avoid penalties.

Conclusion

FAQs

Q1: What does winding up an LLP mean?

Winding up an LLP means legally closing a partnership business. It involves assets liquidation, debt settling, and putting a halt to its operations. It can be done by voluntary winding up, mandatory winding up, or striking off LLP from ROC.

Q2: How to close an LLP that is inoperative?

In order to initiate the winding up LLP process, it’s required to apply for striking off the LLP name. The application must also consist of the consent of partners & creditors, a statement of assets and liabilities, an indemnity bond, proof of ITR acknowledgment, a resolution, and other supportive documents.

Q3: If an LLP is inoperative since its incorporation, can it be closed?

If an LLP has not commenced any operations since its incorporation, it is eligible for filing for an LLP closure form.

Q4: Which form should be filed with ROC to close LLP?

In order to get your winding up LLP done, Form 24 LLP is required to be filed for winding up the LLP.

Q5: What documents are required if an LLP doesn't have a bank account?

In case of no bank account of an LLP, no specific documents are needed. However, the designated partners can attach a declaration for having no bank account.

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