What does LLP stand for?
Greetings to the realm of Limited Liability Partnerships, often referred to as LLPs! LLPs, which were established in 2008 under the LLP Act, offer advantages from both the corporate and partnership structures. Picture a scenario where certain or all partners benefit from the privilege of having restricted liability. Doesn’t that sound intriguing? Let’s learn about winding up LLP.
The story and historical events of a Limited Liability Partnership
Similar to any other man-made organization, a Limited Liability Partnership doesn’t simply vanish without a trace when it’s time to part ways. It comes into existence through legal processes and ends in a comparable manner.
Winding up
Consider the winding up process as the final act in an LLP’s journey. This procedure includes concluding the company’s operations, whether as a result of bankruptcy or other causes. This is what happens:
- Asset Realization: Gathering the LLP’s possessions.
- Settling liabilities: Paying off debts and responsibilities.
- Dispersing Excess: Dividing any remaining treats among the collaborators.
An LLP can choose to close down by its own decision or be forced to do so by a Tribunal. After the winding-up process finishes, the LLP can be dissolved.
The last act: dissolution
Ending a relationship is the big farewell. This occurs when the LLP’s name is formally taken off the register and a public declaration is issued. This occasion signifies the LLP’s termination – it’s akin to the company’s last farewell.
Reasons To Wind Up LLP
1. Steer clear of compliance hassles
Maintaining compliance throughout an LLP’s lifecycle is essential to its operation. Winding up your LLP might relieve you of the continuous burden of regular upkeep if it is not in use.
2. Avoid Penalties and Fines
Deadlines for compliance being missed? That can result in severe fines and punishments. Even worse, partners may be prohibited from forming a new LLP or business. Closing an LLP assists you in avoiding these expensive traps.
3. Conserve Cash
Maintaining a non-compliant or dormant LLP could result in further fines every year. Early closure can help you avoid needless financial obligations.
4. Easier Closure
Positive updates! Closing down a dormant limited liability company (LLP) is a fairly easy process. When you can just close an inactive LLP as soon as possible, why keep it open?
5. Simple Procedure
The Ministry of Corporate Affairs has simplified the process for winding up or liquidating an LLP. Similar to the simple procedure of incorporation, winding up can now be completed with few procedural requirements.
Law Overseeing LLP Dissolution
Are you wondering about the legal requirements in India to close an LLP? Here’s a brief summary:
Important clauses and notifications
- The Central Government is given the authority to create regulations for winding up and dissolving LLPs under Section 65 of the LLP Act, 2008.
- In order to ensure flexibility in the winding-up procedure, Section 67 of the LLP Act, 2008 permits the Central Government to apply provisions from the Companies Act, 1956 to LLPs.
- Notification 6th January 2010: GSR 6(E): applies some provisions of the Companies Act, 1956 to the winding up of an LLP by means of Section 67.
- The Rules for Winding Up and Dissolving LLPs, 2012: These guidelines, which were released on July 10, 2012, specify the steps, documentation, and costs involved in winding up and dissolving LLPs.
Comparison Between LLP Winding Up and Dissolution of LLP
An LLP goes through two separate phases in its life cycle: winding up and dissolution. Let’s dissect it:
Winding Up | Dissolution
- Meaning – The LLP gets ready for closure by liquidating assets and paying off creditors (winding up). The last phase in which the LLP closes down and becomes extinct following the fulfillment of all legal requirements (dissolution) .
- Legal Entity – The LLP is still able to take part in legal actions and is still a legal entity (winding up) . The LLP can neither be sued nor sued; its name is expunged from ROC records, and it is no longer a recognized legal organization (dissolution) .
In brief
- Winding up : Resolving the issues with the LLP.
- Dissolution: The formal conclusion of the LLP’s life.
Modes of LLP Winding Up
An LLP can be concluded in a few different ways. Let’s examine the possibilities:
1. Willing winding up
Under this arrangement, the partners choose to dissolve the LLP on their own volition. This may be predicated on consent between parties or on the LLP agreement’s stated objectives.
2. Insolvency and Bankruptcy Code (IBC), 2016
Under specific circumstances, the IBC focuses on restructuring and reviving entities such as LLPs. An LLP may be ordered to be liquidated by the National Company Law Tribunal (NCLT), particularly in situations when the LLP is insolvent.
3. Mandatory winding up by the Tribunal
The tribunal may wind up the LLP for any reason, including failure to comply with statutory requirements, insolvency, or other legally acceptable grounds, upon the issuance of an external order.
4. Voluntary Liquidation
a voluntary procedure wherein partners choose to end the LLP on their own initiative and without outside pressure. Financial difficulties, a mutual decision to end operations, or the accomplishment of the LLP’s goals are some possible explanations.
Pre-requisites for Voluntary Liquidation
According to the IBC, 2016, an LLP must fulfill the following requirements in order to begin voluntary liquidation:
- Solvency: The LLP needs to be able to settle all of its debts.
- Declaration by Designated Partners: The solvency and ability of the LLP to pay obligations from asset sales must be declared by the majority of designated partners.
- No Fraudulent Intent: The procedure must be followed honestly and not as a way to get out of paying debts.
Procedure to Windup LLP
Step-by-Step Guide
1. Pass and File a Resolution
- Pass a resolution for winding up the LLP.
- File the resolution with the registrar within 30 days. The winding-up process officially starts from the date of the resolution.
2. Declaration of Solvency
- The majority of partners must declare, verified by an affidavit, that the LLP has no debts or can pay its debts within one year.
3. Submit Required Documents
- File the following with the registrar within 15 days of passing the resolution:
- Statement of assets and liabilities from the last two accounts closure to the winding-up date, attested by at least two partners.
- Asset valuation report prepared by a valuer, if applicable.
4. Handle Creditors
- Partners must file Form 2, declaring no unpaid sums or the ability to clear debts within a specified period, not exceeding one year.
5. Publish the Resolution
- Publish an advertisement of the winding-up resolution in a local newspaper within 14 days.
6. Appoint an LLP Liquidator
- Appoint a voluntary liquidator with the approval of the majority of partners.
- The liquidator must be approved by 2/3rd of the creditors in value. If there’s a conflict, the liquidator nominated by the creditors prevails.
7. Liquidator’s Report and Final Steps
- Once affairs are fully wound up, the liquidator prepares a report on the winding-up process and asset disposal.
- If 2/3rd of partners and creditors are satisfied, pass a resolution for winding up accounts and dissolution explanation.
- Send the report and resolution to the Registrar and file an application with the tribunal.
Dissolution
1. Liquidator’s Report
- After settling all liabilities and liquidating assets, the LLP liquidator prepares a report in Form 9. This form details:
- How the LLP was wound up.
- Final accounts and explanations.
- Disposal of property.
2. Approval for Dissolution
- Once the report is prepared, it must be approved by both the partners and creditors for the LLP to be officially dissolved.
Summary
Closing an LLP involves a two-fold process:
- Voluntary Decision: Partners choose to wind up the LLP.
- External Factors: Circumstances or requirements necessitate the winding up.
Striking off
With the Limited Liability Partnership Rules, 2017 (effective from 20th May 2017), the process for winding up an LLP has become much simpler.
Key Update
- LLP Form 24: This form allows you to apply directly to the Registrar to strike off the LLP’s name, streamlining the winding-up process.
Why It’s Better
Before this amendment, winding up an LLP was lengthy and cumbersome. Now, with Form 24, you can complete the process efficiently and with ease.
What happens after the winding-up on an LLP?
Once winding up begins:
- The LLP must stop pursuing new business activities.
- It can only continue operations if necessary to complete liquidation and asset distribution.
Final Outcome
At the end of the process, the LLP will be dissolved and cease to exist.
How TMWALA Can Help with Winding Up Your LLP
Navigating the winding-up process of an LLP can be complex and time-consuming. TMWALA is here to streamline and simplify this journey for you. Here’s how we can assist:
Expert Guidance
- Comprehensive Advice: We provide expert advice on the entire winding-up process, ensuring you understand each step from resolution to dissolution.
Efficient Filing
- Documentation Assistance: We handle the preparation and filing of essential documents, including LLP Form 24 for striking off and Form 9 for the liquidator’s report.
Regulatory Compliance
- Compliance Assurance: We ensure that all legal requirements are met, including declarations of solvency, creditor handling, and publication of resolutions.
Liquidation Support
- Liquidator Appointment: We assist in appointing a qualified liquidator, managing the appointment process, and ensuring their duties are performed efficiently.
Finalization
- Dissolution Application: We guide you through the final steps of dissolution, ensuring all reports are approved and filed correctly with the Registrar and tribunal.
Simplified Process
- Streamlined Procedures: With our support, the winding-up process becomes straightforward and less stressful, leveraging the latest amendments like LLP Form 24 for quick resolution.
Important FAQs
- What is the difference between winding up and dissolution of an LLP?
Ans. “Winding Up” involves the process of liquidating the LLP’s assets, settling its liabilities, and preparing it for closure. **Dissolution** is the final step where the LLP’s name is removed from the register, and it ceases to exist as a legal entity.
- What are the primary reasons for winding up an LLP?
Ans. Common reasons include avoiding compliance hassles, preventing penalties and fines, conserving cash, and the desire for an easier and simpler closure process.
- What steps are involved in the winding-up process?
Ans.
- Pass and file a resolution with the registrar.
- Handle creditors and publish the resolution.
- Appoint an LLP liquidator.
- Prepare and submit the liquidator’s final report.
- Apply for dissolution.
- What is LLP Form 24 and how does it simplify the process?
Ans. LLP Form 24 allows you to directly apply to the Registrar to strike off the LLP’s name, streamlining and simplifying the winding-up process compared to earlier, more cumbersome methods.
- What are the prerequisites for initiating voluntary liquidation under the IBC, 2016?
Ans. The LLP must be solvent, the majority of designated partners must declare solvency, and the process must be conducted honestly without fraudulent intent.
- How does TMWALA assist with the winding-up process?
Ans. TMWALA provides expert guidance, handles the preparation and filing of essential documents, ensures regulatory compliance, assists with liquidator appointments, and simplifies the finalization and dissolution steps.
- What happens if the LLP has outstanding liabilities during winding up?
Ans. The LLP must settle all its liabilities before proceeding to dissolution. If the LLP cannot clear its debts, it may be subject to a different winding-up procedure under insolvency regulations.
- How long does the entire winding-up process take?
Ans. The timeline can vary based on the complexity of the LLP’s affairs and compliance with legal requirements. However, with efficient handling and use of streamlined procedures like LLP Form 24, the process can be expedited.
