Outline of closing limited liability partnership
The LLP, which has not undergone any business activity since its establishment or has been inactive in its business for one year or more, must apply to the Registrar for its shutting down. Also, it should have its removal of the name from the register of the LLPs. If the LLP is quite latent, it is advisable to close it rather than abide by its compliances and pay a huge penalty which is one of the remarkable benefits of LLP.
What does a Closing limited liability partnership mean in terms of organization?
If your business utilizes an LLP model, certain aspects that should be kept in mind from an organizational perspective are as follows:
Initially, the objective of Closing LLP is to eradicate the requirement for any documentation or transaction between your stakeholders and business except the official development of a novel company. This procedure usually is termed "closing," which cuts down any prevalent differences between the two entities.
Other than that, Closing LLP prevents hurdles that decline your business's growth.
What are the main reasons for Closing a limited liability partnership?
After LLP's registration for a particular purpose, the purpose is over.
- A limited liability partnership is dormant for one year of its existence.
- There is no liability/asset on the application date.
- The court has given orders for closing LLP.
- The latest account of LLP is not existing.
- Insolvency of limited liability partnership.
- Approval of all parties like authority, creditor, or partner.
- After the demise of the other partner, the alive partner is willing to close the LLP.
- The partners of a limited liability partnership lack interest in persisting the partnership.
The Procedure of Closing LLP
The fundamental procedure for closing an LLP is as mentioned below:
- One or more partners of the LLP sign an agreement of closure.
- A public official is a witness while signing the closure agreement.
- The assets comprising the business transfer to the novel entity, which acts as a partnership for tax requisites.
Benefits of LLP after its closing:
1. Free from compliance
There is no requirement to adhere to the conformities as the company would dissolve.
2. Proper business
If your chosen business is not making profits, resources can be used better.
3. No fine
After the closure process commences, there is no sort of worry about paying any penalty fee for unexamined causes.
4. No kind of distinctions
One of the primary benefits of LLP is that it alleviates differences between the general and the limited partner businesses.
Disadvantages of closing an LLP:
The drawback of closed partnerships is there is no method to share the profits from the members' activities of the partnership. This indicates that if one partner profits from the partnership's activities, the comprehensive partnership has to suffer.
A joint venture cannot subsist with a closed partnership.
If any member of the partnership is willing to make crucial business decisions, they should get a vote from other members.
Documents to close limited liability partnership:
An application in e-Form 24 must be there to abolish the name of the LLP with the following documents:
- Copy of acknowledgment of current ITR- Self Explanatory
- Address Proof of limited liability partnership.
- Copy the preliminary LLP agreement if any changes are entered but not filed.
- Landlord's NOC (If the registered office is on a lease, one utility bill(electricity bill, water bill, gas receipt, property tax bill) and rent agreement.
- A statement of accounts depicting up-to-date NIL liabilities and NIL assets and not before 30 days of the date of form 24 filing certified by a Chartered Accountant.
An affidavit signed by the selected partners of LLP contains the following:
1. The Limited Liability Partnership has not initiated business, or if it started a business, it halted conducting business.
2. The Limited Liability Partnership has no legal responsibility and remunerates any liability that occurs after scraping its name from the register.
3. The LLP did not open any bank account. Where it was instigated, the bank account got closed together with a certificate(s) or statement from the particular bank portraying the closure of the Bank Account.
4. There is no Income-tax return filing; if it has, it did not conduct any business since its establishment, if applicable.
Copy of detailed Application:- State complete details of LLP and closure reasons.
NOC from Creditors:- NOC for strike-off to get from protected partners and creditors, if any.
Copy of Authority to create the Application:- Duly signed by all the Partners.
Indemnity Bond:
1. The application in the form should have an Indemnity Bond provided by every designated partner duly cosigned about the liabilities. After the exclusion of the name of LLP, the liabilities will be considered.
2. Indemnity Bond must be rendered on the Non-Judicial Stamp Paper of sufficient value as relevant in the State at the location of the Registered Office of the LLP. Hence, the text of the Indemnity Bond should be classified on Non-Judicial Stamp Paper and implementation before the public official.
3. Before the prologue of the LLP Amendment rules, 2017, the method for closing an LLP was quite burdensome and challenging.
4. On the other hand, the procedure has been made simple and easy with its introduction and introduction of LLP E-Form 24.
Final Takeaway
To sum up, closing all LLP is a two-way procedure as one is when some situations bind you to do it, and the other is when you decide to make it happen.
The benefit of LLP for an organization is that it removes the dissimilarity between its general and limited partner businesses. Additionally, it eradicates the financial transactions and documentation between the two bodies. This factor permits the owner shareholders to control the business's operations completely, entailing the capability to set off or obtain a competing company.
Ensure that the benefits of LLP for an exclusive entity overshadow the disadvantages of a closed partnership.
Additionally, there are many documents that can make the process tedious. However, you need not stress about any process of closing an LLP as Lawgical India takes care of all. Our business experts guide partnership firms in winding up their activities with proper support and hassle-free process.
