There are numerous LLPs that were incorporated but have not done any business or stop doing business. In order to reduce the number of bogus entities, this is important to provide ease in the procedure of winding up.
ANY LLP CAN CLOSE DOWN ITS BUSINESS BY ADOPTING ANY OF THE FOLLOWING TWO WAYS:
WINDING UP OF DEFUNCT LLP
For winding up of Defunct LLP the procedure is less complicated as designated partners to file Form-24 only.
e-Form 24 is required to be filed for striking off the name of LLP under clause (b) of sub-rule 1 of Rule 37 of LLP Rules 2008. Similarly, Registrar also has the power to strike off any defunct LLP after satisfying himself of the need to strike off and has reasonable cause.
Section 63, 64, and 65 of the LLP Act 2008 governs the process for winding up of the LLP. It is the process where all the assets of the business are disposed of to meet the liabilities of the same and surplus any, is distributed among the owners. The LLP Act 2008 provides for the following two modes for winding up the LLP i.e.:◦ Voluntary winding up◦ Compulsory winding up
WINDING UP OF AN LLP
PROCEDURE FOR VOLUNTARY WINDING UP OF AN LLP.
1. LLP can be wind-up easily with the approval of ¾ of the partners. To start the liquidation process.
2. Partners need to make a declaration that the LLP does not have any debt or will pay debt totally within not more than 1 year from the process of winding up of an LLP.
3. Next LLP partners should declare that LLP is not winding up because of any frauds. This statement of declaration needs to be prepared with a statement of the assets and the liabilities until the most recent practicable date right before making the declaration for winding up of the LLPs.
4. A valuation of the assets that are relevant to the LLP should be prepared and submitted, in case of any assets. Voluntary winding up the LLP will be effective from the start date of passing the resolution for the reason of voluntary winding up of the LLP.
MODES OF WINDING UP OF LLP
VOLUNTARY: Partners may decide between themselves to stop and wind up the operation of the LLP. Voluntary winding up the LLP will be effective from the start date of passing the resolution for the reason of voluntary winding up of the LLP.
WINDING UP OF LLP SHALL BE UNDERTAKEN BY ADOPTING THE FOLLOWING PROCEDURE.
1. Pass resolution for winding up by taking approval of three-fourth of a total number of partners.
2. Designated partners need to declare solvency
3. Approval by creditors
4. Resolution publication
5. Appointment of liquidator
6. Final report by liquidator
7. Passing on dissolution order
COMPULSORY: BY THE ORDER OF THE TRIBUNAL / COURT THIS KIND OF WINDING UP IS KNOWN AS COMPULSORY WINDING UP.
➢ Compulsory winding up – A limited liability partnership may be compulsorily wound up by the Tribunal,—◦ if the limited liability partnership decides that limited liability partnership be wound up by the Tribunal;◦ if, for a period of more than six months, the number of partners of the limited liability partnership is reduced below two;◦ if the limited liability partnership is unable to pay its debts;◦ if the limited liability partnership has acted against the interests of the sovereignty and integrity of India, the security of the State or public order;◦ if the limited liability partnership has made a default in filing with the Registrar the Statement of Account and Solvency or annual return for any five consecutive financial years; or◦ if the Tribunal is of the opinion that it is just and equitable that the limited liability partnership is wound up.
WINDING UP WITH THE CREDITORS:
Partners need to announce Form 2 stating that they have no unpaid or clear debts within a specified period (Not more than a year from the date of passing a resolution of the winding up)
PUBLICATION OF THE RESOLUTION: After passing the resolution of winding up and consent received for wind up within 14 days, LLP needs to publish an advertisement for resolution of the winding up in a newspaper that is circulated in the territory where the registered office is located or office of LLP is registered.
APPOINTMENT OF THE LLP LIQUIDATOR: A Voluntary liquidator as the LLP liquidator is appointed with fixed remuneration, after the approval from the partners is obtained through resolution. With the approval of ⅔ of the creditor in the value of LLP.
Creditors have a choice to nominate an LLP liquidator.
FILING OF WINDING UP BY A LIQUIDATOR:
LLP liquidators need to prepare a report that states how the winding up of the LLP has been conducted and the property of the LLP has been disposed of after the affairs of the LLP are fully wound up.
With the report of winding up prepared by the liquidator, If the ⅔ of the number of the partners and creditors are satisfied then resolution for winding up the account and explanation for the dissolution must be passed by the partners.
LLP liquidator is required to send LLP winding up report with a resolution to the Registrar and file an application with the tribunal
DISSOLUTION: LLP liquidator will prepare a report as affairs of the LLP are wound up. Liabilities have been discharged, the assets have been liquidated, a report will be made by the LLP liquidator in Form 9. This form contains information about how the company has been wound up and also includes the final account closing with a detailed explanation. Once this approval of the partners, the creditors are sought for dissolution.
In the end, it concluded by saying that closing an LLP is rather a two-way process where one wants to wind up the LLP and decide to do it as well as circumstances make one do it.
LLP Rules, 2009 was amended by introducing the Limited Liability Partnership Rules,2017 with effect from 20 Th May 2017. Under this amendment form, now it is possible to wind up the LLP easily by just making an application to the Registrar for striking off the name of the LLP. The introduction of LLP form 24 under the new amendment has made the whole process very easy and simple.
The process of Winding up begins when a company is not allowed to pursue its business except in the case if the LLP must complete the liquidation and the distribution of the assets. In the end, the company will be dissolved and LLP will effectively cease to exist.