LLP Closure

The Limited Liability Partnership is a corporate body formed and incorporated under the Limited Liability Partnership Act, 2008, that offers the benefits of limited liability to its partners.

However, there are instances when closing the LLP becomes necessary, mainly when the firm is not carrying any business or when continuing the business is no longer desirable or profitable.

LLP can be closed by declaring an LLP as “Defunct”, winding up, and compulsory winding up. The closure of the LLP leads to the ceasing of its operations and the removal of all directors of the firm. Closing an LLP leads to stopping its operations and removing directors, and the business of the LLP is officially dissolved.

Methods of Closing an LLP

In India, a Limited Liability Partnership (LLP) can be closed through three primary methods:

1. Striking Off the Name: This method is suitable for LLPs who have not conducted any business for at least a year. The LLP is declared ‘Defunct’ when it has not carried on any commercial operations in the firm for a year or more. The entire process involves applying to the Registrar of Companies (RoC) to remove its name from the register. Before applying, the LLP must have no assets or liabilities, and all bank accounts should be closed. Additionally, consent from all partners is required.
2. Voluntary Liquidation: If the LLP has assets and liabilities, voluntary liquidation is the appropriate method. This process involves appointing a liquidator to sell the LLP’s assets, settle its debts, and distribute any remaining assets among the partners. The procedure is governed by the Limited Liability Partnership (Winding Up and Dissolution) Rules, 2010, and requires the consent of all partners. 
3. Compulsory Winding Up: If the LLP becomes insolvent and is unable to pay its debts, compulsory winding up is necessary. This legal process allows for the restructuring or liquidation of the LLP’s assets under the supervision of a court-appointed official.

Benefits of LLP Closure

1. Avoids Legal Penalties– Prevents fines for non-compliance with ROC filings.
2. Stops Unnecessary Costs– Eliminates annual compliance and maintenance expenses.
3. Protects Partners– Ends personal liability for future LLP obligations.
4. Clears Tax Burden– Stops tax filings and other financial obligations.
5. Prevents Misuse– Avoids unauthorised use of the LLP’s name or identity.
6. Frees Business Name– Allows reuse of the name for future ventures.
7. Ends Dormant Status– Officially removes inactive LLPs from records.
8. Simplifies Future Ventures– Makes it easier to start new businesses.
9. Avoids Legal Hassles– Prevents complications from non-operational entities.
10. Ensures Clean Records– Keeps partners’ compliance history clear.

Requirements for LLP Closure

1. For Strike Off the Name:

• No Business Activity: The LLP must not have conducted any business for at least a year.
• No Assets or Liabilities: The LLP should have no outstanding debts or assets.
• Consent of Partners: All partners must agree to the closure of the firm.

2, For Voluntary Liquidation:

• Operational LLP: Suitable for LLPs that have assets and liabilities.
• Partner Approval: Requires the consent of all partners.
• No Ongoing Business: The LLP should not be carrying on any business during the liquidation process.

3. For Compulsory Winding Up:

• Insolvency: The LLP must be unable to pay its debts.
• The no. of partners in the LLP is reduced below 2 for more than 6 months.
• The LLP has acted against the interests of the sovereignty, integrity, security, and public order of the nation.
• The LLP has not filed an Annual Return for five consecutive financial years.
• The LLP has made a default in filing the statement of accounts with the RoC.
• The National Company Law Tribunal is of the opinion that it is just and equitable to wound up the LLP.

Checklist for LLP Closure

While applying for Closure of an LLP, Remember:

• Form 24 can only be filed by LLPs that have ceased all commercial activities.
• All bank accounts in the name of the LLP must be closed.
• Affidavits and declarations must be drafted, signed by the designated partners, and included with the Form 24 application.
• An Authorized Notary should notarise affidavits.
• Collect and prepare all necessary documents.
• After submitting Form 24, wait for clearance from the ROC. The ROC may request additional documents for further verification.