LLP Winding up Procedure in India

Winding Up LLP

LLP or Limited Liability Partnership is a new form of business entity introduced in India through the LLP Act, 2008. Winding up of the business is the procedure where the selling of business assets and paying off to creditors take place. In even of any surplus profit or assets, those are distributed to the partners of the LLP in accordance with the Limited Liability Partnership Agreement.

To begin the process for winding up of LLP, a resolution for winding up of LLP must be passed and filed with the Registrar within 30 days of passing of the resolution. On the date of passing of resolution of winding up of LLP, the voluntary winding up shall be deemed to commence. Jain Divya & Associatescan help you wind up your LLP quickly and easily

Winding Up Of LLP By Tribunal

Winding up of LLP can be initiated by a Tribunal for the following reasons :

The LLP wants to be wound up.
There are less than two Partners in the LLP for a period of more than 6 months.
The LLP is not in a position to pay its debts.
The LLP has acted against the interests of the sovereignty and integrity of India, the security of State or public order.
The LLP has not filed with the Registrar Statement of Accounts and Solvency or LLP Annual Returns for any five consecutive financial years.
The Tribunal is of the opinion that it is just and equitable that the LLP should be wound up.

Types Of Winding Up:

Based on grounds of the procedure of winding up differs, which is bifurcated in following heads:

1. Voluntary winding up :

After online LLP registration, where the partners of the LLP mutually decides to wind up the Limited Liability partnership (ground (a) referred above) falls under this head. The same can be further classified in following heads.

(a) Voluntary winding up by members

The Limited Liability partnership, through its partners may decide to wind up the affairs of the LLP on any voluntary grounds on mutual agreement of the Partners or any other ground provided in the LLP Agreement of the concerned Limited Liability Partnership. The LLP shall appoint a liquidation or provisional liquidator to wind up the LLP and its affairs.
(b) Voluntary winding up by creditors

Where the Limited Liability Partnership and its creditors are of the opinion that the LLP may not be able to fulfil and pay its liabilities to continue its business. Here, the LLP should convene the meeting of its creditors to allow them to consider the proposal for the company to be wound up.

2. Voluntary winding up by creditors :

Where the Limited Liability Partnership and its creditors are of the opinion that the LLP may not be able to fulfil and pay its liabilities to continue its business. Here, the LLP should convene the meeting of its creditors to allow them to consider the proposal for the company to be wound up.

Effect Of Winding Up Of LLP

Once the winding up process has begun, a company can no longer pursue its business, except in order to complete the liquidation and distribution of its assets. At the end of the process, the company will be dissolved and will effectively cease to exist.

Declaration Of Dissolution Of The LLP By The Registrar

The Registrar may, by notice in writing, declare that the LLP is dissolved if :

There is no objection received from any partner or creditor of the LLP,
The objection to the proposed dissolution of LLP was subsequently withdrawn, or
The Registrar is the view that the objection to the proposed dissolution is without justification.

The declaration of dissolution of the LLP shall only take effect upon such notification is given to the Registrar and the LLP cannot be used by the court after liquidation

Appointment Of LLP Liquidator

The LLP fill within 30 days of :

The passing of a resolution of voluntary winding up, where the LLP has no creditors; or
Filing of a notice of the decision of winding up with the consent of the creditors, where the LLP has creditors;

With the consent of the majority of the partners, through resolution, appoint a voluntary liquidator as the LLP liquidator and fix his remuneration. The appointment of the liquidator will be allowed only after the approval of 2/3rds of the creditors in a value of the LLP in the case of the options 2 and 3 of the consent options.

If the creditors want, then they can nominate an LLP liquidator and in a case of simultaneous appointments by the creditors and the partners, the LLP liquidator appointed by the creditors will prevail. If no liquidator is acting, then the Tribunal can appoint an LLP liquidator.

Reasons To Wind Up LLP

Avoid Compliance

A LLP is a legal entity and a juristic person requiring regular maintenance of compliance throughout its lifecycle. LLP winding up can be used close a LLP that is not active and avoid compliance responsibilities.

Avoid Fines

A LLP that doesn't file its compliance on time incurs fines and penalty, including debarment of the Partners from starting another LLP or Company.

Low Cost

A dormant LLP or non-compliant LLP could potentially acquire more penalty, if compliance is not maintained every year.

Easy to Close

The formalities for winding up of a dormant LLP are relatively simple and easy to complete. Hence, its best to close an inactive LLP at the earliest.

Easy Process

The Ministry of Corporate Affairs has simplified the process for liquidation or winding up of LLP through various initiatives. Hence, akin to incorporation, a LLP can be wound up easily with minimal procedural requirement.