Limited Liability Partnerships (‘LLP’) are preferred structure for small businesses and investment holding entity due to its simplicity and lesser compliance burden. The process of closing of LLP is quire simpler as compared to the company and can be closed by adopting following methods:
1. Voluntary Strike off
This is simplest method of closure of LLP which involves filing of application to the registrar where LLP has no assets/liabilities, and has no active business since last 1 year.
2. Voluntary Winding up
This method is adopted where LLP has assets and liabilities to settle at the time of closure.
3. Compulsory Winding up
This method is adopted where LLP has more liabilities than assets i.e insolvency situation and it can be done through NCLT.
In this article, we will cover the legal provisions, pre-conditions, and process of voluntary strike off of LLP.
Legal Provisions
Rule 37 of the Limited Liability Rules, 2009 deals with the striking off defunct LLP. Defunct LLP means a LLP which is not carrying on any business or operation for a period of one (1) year or more, such LLP can make an application to the Registrar, with the consent of all partners of the LLP for striking off its name from the register of companies.
Pre-conditions before Voluntary Strike off
- There should not be any Inspection / investigation / prosecution pending against the LLP;
- LLP shall file overdue returns in Form 8 and Form 11 up to the end of the financial year in which it ceased to carry on its business or commercial operations before filing an application for strike off in Form 24;
- LLP shall file Income Tax return upto the year in which it carries on business or commercial activities;
- LLP shall ensure that there is no business or commercial transactions in preceding one (1) year;
- LLP shall sell of all its assets and pay all its liabilities before making an application for strike off in Form 24;
- LLP shall close all its bank accounts before filing application;
- LLP shall ensure that initial LLP Agreement has been filled with the RoC.
Procedure of Closure of LLP or Voluntary Strike off
Pre-Application filing stage
> Pass a resolution by designated partners for applying for voluntary striking off of LLP;
> Appoint CA for certification of statement of account disclosing NIL assets and liabilities.
> Take written consent of all the partners of LLP for strike off of LLP;
> Close all Bank Account of the LLP;
>Sell the assets, if any and pay off the liabilities, if any;
>Drafting of all the requisite documents i.e Affidavit and for strike off LLP;
Application filing stage / Form 24
The LLP needs to file an application for strike off in Form 24 with the following documents/ attachments:
> Copy of authority to make the application duly signed by all partners.
> Copy of acknowledgment of latest Income-tax return
> Form 8 Statement of Account Solvency and Charges (upto 4 years)
> Form 11 Annual Return of LLP (upto 4 years)
> Affidavit signed by designated partners [sub-clause (b) of (ii) of subrule (1A) to rule 37(1)]
> Statement of Account disclosing NIL Assets and NIL Liabilities, certified by a Chartered Accountant in practice made up to a date not earlier than 30 days of the date of filing of Form 24;
> Copy of the initial limited liability partnership agreement, if entered into and not filed, along with changes thereof in cases where the LLP has not commenced business or commercial operations since its incorporation.
> Consent of all partners.
After filing an application in Form 24, LLP has to wait for approval from the Registrar. Registrar may ask for any additional documents for his satisfaction. Once, Registrar is satisfied, he shall send name of the LLP for publication in official gazette asking to raise objections from general public. If no objection is received in a prescribed time period, Registrar will strike off the name of LLP from its register.
Some FAQs with regard to Strike off
1. Which date one should reckon for cessation of business?
The date of cessation of commercial operation is the date from which the Limited Liability Partnership ceased to carry on its revenue generating business and the transactions such as receipt of money from debtors or payment of money to creditors, subsequent to such cessation will not form part of revenue generating business.
2. Whether up to date annual filing is required for voluntary strike off of LLP?
As per LLP Amendment Rules, 2017, annual filing forms like form 8 and 11 is required to be filled up to the date of financial year in which LLP ceased to carry on business or operation. For e.g: LLP ceased the business on 31st December, 2024 then form 8 and 11 needs to filled for F.Y upto 2024-25.
3. What if Initial LLP Agreement is not filled?
As per LLP Amendment Rules, 2017, initial agreement is not filled and LLP is inoperative since incorporation then application for strike off is allowed if LLP Agreement is filled at the time of strike off but if LLP has commenced business and LLP Agreement is not filled then LLP must file LLP Agreement in form 3 before filing application for strike off.
4. What if Income Tax return is not filled?
As per LLP Amendment Rules, 2017, Income tax return is required to be filled up to the date of financial year in which LLP ceased to carry on its business or operation. If LLP is not commenced business since incorporation then filing of IT return is not required and LLP can directly apply for strike off.
Conclusion
Voluntary strike off of LLP is simple method of closure of LLP than other methods. Those LLPs which are having no business and no assets / liabilities need to follow voluntary strike off method to close defunct LLP to avoid any unnecessary compliances and regulatory watch.
(Republished with amendments)
Author Bio
LLP Clouser