Closing a Defunct Limited Liability Partnership (LLP) with No Assets or Liabilities:
The simplest way to close a defunct LLP that has no assets or liabilities is by striking off its name from the register. The designated partners should first settle any outstanding finances, such as selling assets and paying off liabilities. Since there are no assets or liabilities and no public complaints, the Registrar will close the LLP.
Definition of Limited Liability Partnership (LLP):
A limited liability partnership (LLP) is a type of partnership that is created and registered under the Limited Liability Partnership Act of 2008.
Options for Closing an LLP:
- Declaring the LLP as Defunct: If an LLP wants to close down its business or has not been active for a year or more, it can apply to the Registrar to have the LLP declared as defunct and its name removed from the LLP register. This requires filing an E-Form 24 as per the LLP Rules 2008. The Registrar also has the authority to strike off a defunct LLP if deemed necessary and with valid reasons.
- Winding up of LLP: This process involves selling the LLP’s assets to cover its liabilities, with any remaining surplus distributed among the partners. The LLP Act of 2008 provides two options for winding up an LLP:
-
- Voluntary Winding Up: The LLP can be voluntarily wound up by the partners themselves by ceasing operations and initiating the winding-up process.
- Compulsory Winding Up: The Tribunal has the power to order the dissolution of an LLP under specific circumstances, including when the number of partners decreases to less than two for more than six months, the LLP is unable to pay its debts, or it acts in a manner that jeopardizes India’s sovereignty, integrity, or public order. Additionally, failure to file the Statement of Account and Solvency or annual return for five consecutive financial years can also lead to compulsory winding up.
These options provide a framework for closing an LLP based on its specific circumstances and compliance with the relevant regulations.
Advantages of Deregistering an LLP:
- Compliance-Free: Deregistering an LLP relieves the entity from the burden of staying compliant with regulatory requirements as it will no longer be in operation.
- No Penalties: Once the closure process is initiated, the LLP no longer needs to worry about incurring penalties for any outstanding non-compliance or unresolved issues.
- Opportunity for a New Business: If the existing LLP is not generating profits or fulfilling the desired objectives, deregistering it provides an opportunity to utilize resources for a more promising business venture.
- Cancellation of Leases: During the winding-up process, all lease agreements entered into by the LLP can be terminated, relieving the LLP from any further lease obligations. If there are penalties associated with the termination, they can be paid from the proceeds of asset sales.
By opting for deregistration, an LLP can free itself from the regulatory and financial obligations associated with its operation, allowing for a fresh start or the allocation of resources to more productive ventures.
List of Required Documents for Deregistering an LLP:
- Affidavit by all the Partners: A sworn statement by each partner confirming their consent and agreement to the deregistration process.
- Authorization Letter: A letter authorizing a designated partner or a representative to carry out the necessary procedures for the deregistration of the LLP.
- Consent of all partners: Written consent from all partners of the LLP, indicating their agreement to dissolve and deregister the LLP.
- Declaration by all partners: A declaration by all partners affirming that the LLP has no outstanding liabilities or pending legal obligations.
- Indemnity Bond by all partners: A legally binding bond wherein all partners undertake to indemnify any future claims or liabilities that may arise after the deregistration of the LLP.
- Statement of accounts showing Nil assets and liabilities: A certified statement of accounts prepared by a Chartered Accountant, confirming that the LLP has no remaining assets or liabilities.
- Copy of acknowledgement of latest Income Tax Return: A copy of the acknowledgement receipt of the LLP’s latest income tax return filed with the tax authorities.
- Initial LLP Agreement along with all supplementary agreements, if any: A copy of the original LLP Agreement and any supplementary agreements made during the LLP’s existence.
These documents are essential for the deregistration process of an LLP, ensuring that all partners are in agreement and that the LLP’s financial affairs are properly accounted for before the closure.
Process of Deregistering an LLP:
Step 1: Close the Bank Account: Close the LLP’s bank account to conclude financial transactions.
Step 2: Sell Assets: If the LLP owns any assets, sell them and convert them into cash.
Step 3: Settle Liabilities: Pay off any outstanding liabilities or debts owed by the LLP.
Step 4: Obtain Consent from Partners: Obtain written consent from all partners, expressing their agreement to deregister the LLP.
Step 5: Prepare Closure Documents: Prepare all the necessary documents required for the closure of the LLP, including affidavits, authorization letters, declarations, and indemnity bonds.
Step 6: File Form 24: File Form 24, along with the relevant documents, with the Registrar of Companies to initiate the process of striking off the LLP’s name from the register.
By following these steps, the LLP can go through the process of deregistration smoothly and ensure that all financial obligations are fulfilled before officially closing down.
Key Deliverables
- Deregistration Certificate
- Closure Documents
- Proof of Bank Account Closure
- Asset Sale Documents
- Liabilities Settlement Proof
- Acknowledgement of Consent
- Form 24 Acknowledgement
What do you want to know?
A defunct LLP can be closed by filing an application with the Registrar for the LLP’s name to be struck off the register with the permission of all of the LLP’s partners.
Normally, it takes 6 to 12 months for the LLP’s name to be removed from the registrar’s records.
The LLP can be closed if it has been dormant for at least one year prior to the filing of the application or has been inactive since the date of incorporation.
Yes. To file an application for the closure of an LLP, all of the partners must agree.
The Registrar will approve the application form when it has been reviewed. The LLP’s status will be changed to “in the process of being struck off.” Subject to approval and public advertisement, the LLP shall be marked as stuck off.
According to the LLP Amendment Rules of 2017, income tax returns must be filed up to the end of the financial year in which the LLP ceased to do business or operate. If an LLP has not started doing business since its formation, no IT return is necessary, and the LLP can file for strike off directly.