Manner and process to Close LLP through Strike off Process
A limited liability partnership (LLP) is a combination of partnership and corporation. It is a new structure of business which facilitates the flexibility of partnership with benefit of limited liability from company at a low compliance cost. LLP will not be affected by the joining or discontinuing of members. Hence it can be dissolved only as per the law. LLP Act and Rules also provide an easy exit option to the LLP who failed to carry on their business without forcing them to spend a huge amount for such exit option. We have summarized below the main provisions governing the strike off process.
Manner of Strike off of LLP
The LLP may be closed either by departments or by the LLP itself. Any LLP can close down its business by adopting any of the following two ways:-
- Suo Moto Strike off by Registrar
When would Registrar initiate Strike off?
Section 75 of the LLP Act, 2008 provides the power to the registrar to strike-off the LLPs. Where the Registrar has reasonable cause to believe that a limited liability partnership is not carrying on business or its operation, in accordance with the provisions of this Act, the name of limited liability partnership may be struck off the register of LLP. The Registrar shall, before striking off the name of any LLP, provide a reasonable opportunity of being heard. The LLP may be requested to send their representations along with copies of the relevant documents (PAN data in respect of corporates, Income Tax returns (ITRs) of corporates, financial statements filed with the Registrar by corporates, returns of allotment of shares, audit reports and statements of financial transactions (SFT) received from banks relating to corporates) within a period of one month from the date of notice.
Registrar of LLP may strike of name of LLP by following the below process:
- As per rule 37(1), Where a limited liability partnership is not carrying on any business or operation for a period of two years or more.
- the Registrar shall send a notice to the limited liability partnership and all its partners, of his intention to strike off the name of the LLP from the register and requesting them to send their representations along with copies of the relevant documents, if any, within a period of one month from the date of the notice.
- Notice sent to Partner in case of suo-motu strike-off shall also be placed on the website of the MCA for the period of 1 month for the general information of the public.
- After the expiry of prescribed time period, Registrar if satisfied may decide not to remove name of the LLP, Unless the contrary the Registrar may by order strike off the name of the LLP and order also to be published in the Official Gazette.
- Suo Moto Strike off by LLP
Business not only depends on the hard work of its owner but it is simultaneously depended upon n number of external factors which may become unfavorable for business. In such scenario, partners may mutually decide to close their LLP as they may not be able to generate revenues to match even the break-even cost.
- The LLP will call the meeting of all the partners and pass the resolution for striking off of the LLP and authorise any partner to take the actions regarding filing of application with Registrar.
- If LLP is governed by any special law then before making the application to Registrar, the approval of the body constituted under such special law will be required. For example, LLP registered with SEBI as sub-broker will be required SEBI approval before filing e-Form 24 and such approval will be attached with e-Form 24.
- After assent of all partners and obtaining no objection from creditors, LLP will make application in E Form 24 for striking off name of LLP. Form 24 is to be filled by those LLPs only which wants to close their business permanently. Therefore, the LLP which is operational and its promoters wants to close the LLP then the LLP has to close all its commercial activities before filling the form 24.
- LLP should ensure that there is no pending compliance with respect to annual filing of LLP and filing of ITR. LLP needs to file an application with Registrar in LLP Form 24 for striking off of the LLP with following below mentioned documents:
Attachments of Form 24
- Statement of Accounts certified by CA which shall not be older than 30 days from the date of application.
- Latest Income Tax Return filed acknowledgement copy
- Bank Account Closure Certificate, if any
- Consent of Partners/Resolution for Closure of LLP
- Affidavit verifying that there are no creditors/liability
- Indemnity Bond and Affidavit for Closure of LLP
Registrar, after receipt of application will display the details on the website of Ministry of Corporate Affairs for information of general public. The Registrar will verify all the documents presented by LLP and if there is no objection raised by the Registrar, they will strike off the LLP and will be intimated through mail.
Other Key Points
- LLP should file suo moto application on two grounds:
- It has not commenced any business activity since incorporation for 1 year.
- It has commenced activity but it ceased to carry on such business for more than 1 years.
- As per rule 37 (1A) of LLP Amendment Rules 2017 , any overdue returns in form 8 or form 11 up to the end of financial year in which the LLP ceases to its commercial activities must be filled before filling of form 24.FORM-8(Statement of Solvency (Annual Accounts)) ,FORM-11(Annual Return).
- As per explanation of rule 37 introduced by LLP Amendment Rules 2017:-
- LLP has not commenced business or where it has commenced business date of cessation of business.
- LLP does not have any liability and indemnifying in case any liability arises in future.
- That LLP has not opened any Bank Account or where it has opened bank account then such bank account has been closed and certificate from the Bank of the same effect.
- LLP has not filed any ITR since it has not commenced business or copy of the acknowledgement of the latest ITR.
- After registration of a LLP, a LLP agreement must be filled with MCA within 30 days of registration ,if that it enters to that agreement and is not filled then before filling of form 24 that agreement must be filled with amendments.