LLP Closure is the process of winding up an LLP and dissolving all its operations. The LLP closure process needs to be followed to officially wind up a partnership business and set all its partners free from the burden of filing annual returns as well as other essential compliances. Even in the condition of inactivity of the LLP, its partners have to follow compliance requirements as failing to do may result in penalties, or legal actions that may turn out to be expensive as well as time-consuming. However, following the process of closure of LLP is a one-time task that sets each partner free from compliance requirements and fear of penalty as well as disqualification!
An Overview
Closure of an LLP means winding up its operations and officially dissolving the entity. Several factors may lead to the closure of LLP such as financial difficulties, constantly failing to meet its objectives, low scope of scalability, and so on. In such conditions, winding up LLPs is necessary to avoid the need for filing annual returns and compliances including LLP Form 8 & 11, Income Tax Return (ITR), etc. each financial year. LLPs failing to file such statutory returns, have to bear a penalty of Rs 100 per day that has no maximum limit. Applying for Closure of LLP can protect you from any legal prosecution as well as fines or penalties arising due to non-compliance.
Limited Liability Partnership or LLP is a newly introduced business structure that came into existence in India through the Limited Liability Partnership (LLP) Act, 2008. LLPs have their own benefits but audit exemption is the topmost one, making LLPs a top choice of entrepreneurs. An LLP with annual turnover below Rs 40 Lakhs and/or the capital contribution less than Rs 25 Lakhs, is exempted from audit.
The LLP closure procedure was complicated and thus a challenging task. However, the Limited Liability Partnership (Amendment) Rules, 2017 made the process less complicated by introducing LLP Form 24.
Documents required for Closure of LLP
Similar to other compliances, documentation plays a crucial role in the efficient closure of LLP. Various documents are required to initiate the LLP closure process. The required documents while applying for an LLP closure as given below;
- Application for closure of LLP (form 24)
- Consent in Written from each Partner
- The statement of company Accounts must be verified by a CA in practice that should also reflect zero assets & liabilities of the LLP. However, it should not be older than 30 days before the date of closure application filing.
- Affidavits by all partners; either severally or jointly.
- A copy of the latest Income Tax Return acknowledgment.
- An Indemnity Bond towards liability that partners may have to face even after striking off the name.
- Digital Signature Certificate (DSC) of Partners
- Any other documents that may be required by the ROC
Procedure for filing LLP Closure
In order to get your LLP name struck off the register of ROC, some steps are needed to be followed. An LLP closure process possesses the following steps;
1. Convene a General Meeting
To initiate the LLP closure process, convening a meeting with all the designated partners is pivotal. They all must be available in-person in the meeting to discuss the closure of the company and eventually are agreed on winding up of the LLP.
2. Cease company’s entire Operational Activities
Before filing LLP Form 24, the promoters of the company must keep in mind that their LLP is not in operating mode and has ceased all their commercial activities. Only after stopping all business operations completely, you are eligible to file an LLP Closure form. In simple words, an LLP can file Closure Form 24 only if it never started its business operations or has ceased all business activities within the initial years of its incorporation.
3. Close Bank Accounts
Before going for LLP Closure, bank accounts opened in the name of the LLP must be closed along with obtaining a letter stating closure of the LLP's bank account must be obtained from the bank/banker.
4. Statement of Account
Afterward, prepare a statement of account which should be verified by a practicing Chartered Accountant. Also note that this statement should not be dated over 30 days from the Form 24 filing date.
5. Affidavits & Indemnity Bond
Every partner of an LLP must give an affidavit outlining that the attached documents and information filed in Form 24 are correct to their knowledge. The partners should also enter into an Indemnity bond for taking personal responsibility for any future liability.
6. Filing Form 24
Post preparation and arrangement of essential documentation, file for the prescribed form 24 to get your LLP name struck off the register of ROC along with providing scanned copies of supportive documents. The form must also be digitally signed by all partners.
LLP Closure Conditions
Before filing for closure of LLP, it is necessary to fulfill the prerequisite criteria specified by the concerned authorities. If an LLP doesn’t fulfill the criteria, it won’t be eligible to file the LLP closure procedure. The LLP Closure conditions that must be met before initiating the process for closure of the LLP are listed below;
- LLP has not commenced its operations or not carrying out its business operations for one year or more
- LLP has no assets and liabilities at the date of filing Form 24
- All partners are agreed on the decision of closure
- LLP has filed all its due returns in Form 8 & Form 11 up to the end of the financial year in which it ceased its business operations
An LLP closure process is a statutory way of winding up its operations and officially dissolving it. The process of closure of LLP involves many steps ranging from convening a general meeting of all partners, ceasing all operations, bank accounts closure, and arranging documentation (affidavit, indemnity bond & statement of account) which are prerequisites for filing Form 24. Check eligibility criteria and documentation requirements before filing an application for LLP closure in India. Arrangement of essential documentation and duly filled form ensures fast and hassle-free winding up of an LLP.
FAQs
Q1: What is the role of designated partners during the LLP winding-up process?
The partners of an LLP are responsible for initiating winding up of their LLP, helping the liquidator, protecting as well as providing necessary records, and following all the prerequisite compliances for closing LLP.
Q2: What may be the reasons for winding up an LLP?
Several factors may be responsible for the winding up of an LLP i.e. financial limitations, not being able to achieve its objectives, insolvency, or unanimous decision of the partners.
Q3: Can an LLP be restored after its winding up?
Restoring an LLP after its winding up is possible only in certain conditions. In a few exceptional conditions, the court may allow the restoration of an LLP.
Q4: How long does an LLP winding up process take?
The LLP winding-up process completion time may vary a little bit depending on various factors i.e. preparation/arrangement of required documentation, cooperation among partners, or any legal complexities etc.
Q5: What complications of non-compliance you may need to face during LLP winding-up process?
In case of non-compliance during the LLP closure procedure, partners may have to face fines or penalties, legal actions, or other potential personal liability.