LLP is a new form of the concept introduced in India through the LLP act. LLP is exempt from audit if the annual turnover of the LLP is less than Rs.40 lakhs and/or the capital contribution is less than Rs.25 lakhs. So this characteristic has made LLP popular amongst many entrepreneurs. However, it may be necessary to close or wind up an LLP, due to a number of reasons.
LLP Winding up Overview
An LLP winding up can be voluntary or by a Tribunal. If an LLP is to initiate winding up voluntarily, then It must pass a resolution to wind up the LLP with approval of at least three-fourths of the total Partners. Approval of the lenders would also be required for winding up if LLP is having lenders, whether unsecured or secured.
Winding up of LLP by Tribunal
Tribunal can initiate winding up of LLP for the following reasons:
- The LLP wants to be wound up.
- There are not less than two Partners in the LLP for more than 6 months.
- The LLP is not in a position to pay its debts.
- Where the interests of the sovereignty and integrity of India, the security of State or public order has been affected by the working/act of LLP.
- Where Statement of Accounts and Solvency or LLP Annual Returns for any five consecutive financial years has not been filed with the Registrar by the LLP.
- It is just and equitable, in the opinion of the Tribunal, that the LLP should be wound up.
Winding Up of LLP Procedure
A resolution for winding up of LLP must be passed and filed with the Registrar within 30 days of passing of the resolution. The voluntary winding up shall be deemed to commence on the date of passing of the resolution for winding up of LLP.
After filing the resolution for winding up of LLP with the Registrar, a declaration by the majority of Partners (not less than two) shall be made verified by an Affidavit to the effect that the LLP has no debt or that it will be in a position to pay its debts in full within a period, as mentioned in the declaration, but not exceeding one year from the date of commencement of winding up of LLP. The following documents, along with the Affidavit signed by the majority of Partners, must be filed with the Registrar within 15 days after passing of the resolution for winding up of LLP:
- Attested by at least two Partners, a Statement of assets and liabilities for the period from last accounts closure to date of winding up of LLP.
- If there are any assets in the LLP, evaluation Report of the assets of the LLP prepared by a valuer.
Winding up of LLP with Creditors
Before taking any action for winding up, the approval for winding up of LLP must be requested from the creditors if an LLP under winding up has any secured or unsecured creditors Creditors. Creditors are required to give their approval on winding up of LLP within 30 days of receipt of a request for winding up. If it is in the interest of all partners and all creditors that the LLP be wound up, then the LLP can proceed with a voluntary winding-up procedure.
Appointment of LLP Liquidator
Within 30 days of passing of the resolution for voluntary winding up through a resolution, an LLP Liquidator must be appointed. In case there are any creditors, then the appointment of LLP Liquidator shall be valid only if it is approved by two-thirds of the creditors in the value of the LLP.
Liquidators of LLP are required to perform the functions and duties for winding up of LLP. The LLP Liquidator would adjust the rights of the partners after settling the creditors. Proper books of accounts about the winding up of the LLP shall be maintained by the liquidator while discharging his duties.
Filing of Winding Up Report by LLP Liquidator
The LLP Liquidator would prepare a report, once the affairs of the LLP is fully wound up, stating how the winding-up of LLP has been conducted and property of the LLP has been disposed of. If two-thirds of the number of Partners and Creditors in value is satisfied with the winding-up report prepared by the LLP Liquidator, then a resolution for winding up of accounts and explanation for dissolution must be passed by the Partners.
LLP winding up a report along with the resolution shall be sent, by the liquidator to the Registrar and file an application with the Tribunal.
Dissolution of the LLP
The Tribunal would pass an order that the LLP shall stand dissolved if the Tribunal is satisfied with the procedures of winding up of the LLP. The LLP Liquidator is required to file a copy of the order from the Tribunal with the Registrar for the winding up of LLP. The Registrar on receiving the copy of the order passed by the Tribunal for winding up of LLP would publish a notice in the Official Gazette that the LLP stands dissolved.