Introduction:
LLP[1] stands for Limited Liability Partnership, which combines the advantages of a corporation with the flexibility of a partnership. Regardless of changes in partners, the LLP can continue to exist. It has the ability to form contracts and possess property in its name. The LLP is a separate legal organization with full accountability for its assets, but the partners’ liability is limited to their agreed-upon contribution to the LLP. Individual partners are also protected from joint liability produced by another partner’s incorrect business decisions or misconduct because no partner is liable for the autonomous or unauthorized actions of other partners. An agreement between the partners or between the partners and the LLP, as the case may be, governs the mutual rights and duties of the partners within an LLP. The LLP, on the other hand, remains liable for its other duties as a separate business. LLP is referred to as a hybrid between a company and a partnership since it incorporates aspects of both “a corporate structure” and “a partnership firm structure.” The Ministry of Corporate Affairs updated the Limited Liability Partnership Rules, 2009 by adopting the Limited Liability Partnership (Amendment) Rules, 2017 with effect from May 20, 2017. The MCA[2] has issued LLP Form 24 as a result of this reform, and it is now feasible to simply close an LLP by submitting an application to the Registrar for the name of the LLP to be struck off.
Form 24[3]
With effect from May 20, 2017, the Ministry of Corporate Affairs has revised the Limited Liability Partnership Rules, 2009 by adopting the Limited Liability Partnership (Amendment) Rules, 2017. The MCA has issued LLP Form 24 as a result of this reform, and it is now feasible to simply close an LLP by submitting an application to the Registrar for the name of the LLP to be struck off. We’ll go over LLP Form 24 and the procedure for striking off an LLP’s name in detail in this post.
Section 75 of the LLP Act, 2008[4]
In accordance with the provisions of this Act, if the Registrar has reasonable grounds to believe that a limited liability partnership is not carrying on business or operating, the name of the limited liability partnership may be struck off the register of limited liability partnerships in the following manner:
Granted, however, that before striking out a limited liability partnership’s name under this section, the Registrar must provide the limited liability partnership a reasonable opportunity to be heard.
Rule 37 of the LLP Act, 2009[5]
(1) In the case of a limited liability partnership that is not engaged in any business or operations:
(a) For a period of two years or longer, and the Registrar has reasonable cause to believe that this is the case, in order to take proceedings to have the LLP’s name struck out.
(b) For a period of one year or more, and with the permission of all limited liability partnership partners, has filed an application in Form 24 with the Registrar to have its name struck off the register.
The Registrar shall notify the limited liability partnership and all of its partners of his intention to strike the limited liability partnership’s name from the register and request that they send their representations, along with copies of any relevant documents, within one month of receiving the notice: Provided, however, that under subsection (b), no such notice by the Registrar is required: Where the limited liability partnership is governed by a special law, the application for name change must be accompanied by the permission of the regulatory authority established or constituted under that law.
Winding Up
If an LLP fails to file a statutory return, the penalty is Rs.100 per day, with no upper limit. To preserve compliance and avoid penalties, it’s typically better to wind up dormant LLPs so that they don’t have to file LLP Form 11, LLP Form 8, or an Income Tax Return for the LLP each financial year. Prior to the adoption of the Limited Liability Partnership (Amendment) Rules, 2017, the process of dissolving an LLP was lengthy and inefficient. The procedure has been made easier and simpler with the introduction of LLP Form 24. As a result, entrepreneurs with dormant or defaulting LLPs that are incurring penalties should take advantage of this opportunity to close the LLP.
Procedure to Fill the Form
The method for closing an LLP by filing Form 24 is as follows:
- Only LLPs that have never started a business or have stopped doing so can file LLP Form 24. If the LLP is already in operation and the promoters want to close it, the LLP must first stop doing business.
- Only those LLPs with no creditors and no open bank account can file LLP Form 24. As a result, any bank account created in the name of the LLP must be closed prior to filing LLP Form 24, and a letter from the bank proving closure of the bank account in the name of the LLP must be acquired.
- All of the LLP’s Designated Partners must first sign an affidavit, either jointly or individually, stating that the Limited Liability Partnership stopped carrying on commercial activity on (Date) or has not started doing business. Furthermore, even after striking off the LLP’s name from the Register, the LLP Partners must declare that the LLP has no liabilities and cover any liability that may emerge. Even if an LLP is closed using Form LLP 24, the Partners’ liability does not go away.
- The LLP’s income tax return and LLP deed must be enclosed with Form LLP 24. It is not required if the LLP has not filed any income tax returns and has not engaged in any business activity. A copy of the acknowledgment of the most recent Income-tax return filed must be added to the application to close the LLP if it is not otherwise.
- The LLP agreement must be filed with the MCA within 30 days of registration after the LLP is formed. In the event that this requirement was not met and an LLP agreement was not filed, the first LLP agreement, as well as any changes, must be filed.
- Before filing LLP Form 24, any overdue Form 8 and Form 11 returns must be filed up to the end of the financial year in which the limited liability partnership ceases to carry on its business or commercial operations. The date of cessation of commercial operation is the date on which the Limited Liability Partnership ceased to conduct its revenue-generating business, and any subsequent transactions, such as receiving money from debtors or paying money to creditors, will not be considered revenue generating business.
- A statement of accounts indicating NIL assets and NIL liabilities, certified by a practicing Chartered Accountant up to a date not earlier than thirty days before the date of filing of Form 24, must be obtained once all the documents for filing of LLP Form 24 have been prepared.
- The relevant documents, along with LLP Form 24 (Download LLP Form 24), can then be filed with the MCA in order to have the LLP name struck out. If the application is judged to be acceptable, the concerned Registrar of Companies will post a notice on the MCA website announcing the LLP’s striking off.
Conclusion
It is advisable for businessmen with dormant or defaulting LLPs, which are not actually working and are incurring fines, to have their LLPs struck off via the aforesaid procedure and avoid the Ministry’s harsh penalties.
References:
[1]Limited Liability Partnership, Ministry of Corporate Affairs [https://www.mca.gov.in/MinistryV2/natureoflimitedliabilityparterneshipllp.html#:~:text=LLP%20is%20an%20alternative%20corporate,the%20flexibility%20of%20a%20partnership.&text=The%20LLP%20is%20a%20separate,agreed%20contribution%20in%20the%20LLP.]
[2] Ministry of Corporate Affairs, Government of India [https://www.mca.gov.in/content/mca/global/en/home.html]
[3] Form 24, Application for striking of name of Limited Liability Partnership (LLP) [https://www.mca.gov.in/LLP/dca/help/instructionkit/1119-form24LLP_help.PDF]
[4] Section 75 in The Limited Liability Partnership Act, 2008 [https://indiankanoon.org/doc/167747434/]
[5] Section 37(1) in The Limited Liability Partnership Rules, 2009 [https://indiankanoon.org/doc/44093107/]
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