Winding up of LLP
The Limited Liability Partnership has been emerged as a hybrid form of entity with features of Company as well as Partnership
The separate legislation has been framed for functioning and governing LLPs
Upto 40 lakhs, exemption from audit has been allowed to LLP. Feature of LLP has been welcomed by many entrepreneurs. However, favourable or unfavourable circumstances may create different instances in different way which can result in proceeding towards winding up of LLP
Reasons to Wind Up LLP:
- Avoid compliance and filing responsibilities for the LLP’s which are not active.
- To avoid fines and penalty for late filing, it is better to officially Wind Up LLP’s which are inactive.
- When compared to maintaining compliance for Dormant LLP, it might actually be cheaper to Wind Up and incorporate again when the time is right.
- It makes easy for inactive LLP’s that have NIL assets and liabilities to close down or Wind Up.
Modes of Winding Up of LLP
LLP may initiate winding up voluntarily, then the LLP must pass a Partners resolution to wind up the LLP with the approval of at least three-fourths of the total number of Partners. If the LLP has lenders, secured or unsecured, then the approval of the lenders would also be required for winding up of the LLP.
- Passing of Resolution
- Declaration of solvency by designated partners
- W3. Approval of Creditors
- Publication of Resolution
- Appointment of Liquidator
- Preparation of Final Report by the Liquidator
- Passing on Dissolution Order
- For a period of more than six months, the number of partners of LLP is reduced below two;
- LLP is unable to pay its debts;
- LLP has acted against the interests of the sovereignty and integrity of India, the security of the State or public order;
- LLP has made a default in filing with the Registrar the Statement of Account and Solvency or annual return for any five consecutive financial years; or
- Tribunal is of the opinion that it is just and equitable that the LLP be wound up
2) A verification of the declaration and statement must be filed on Form 3 within 15 days of the passing of the resolution immediately preceding the date of passing of the resolution for winding up. The documents required to be filed are:
(a) A statement of assets or liabilities (starting from the last date when accounts were prepared up till the latest practicable date immediately before making the declaration) must be filed in Form 4.
(b) A valuation report of the assets, if any, by a value.
3) Every creditor, whether secured or unsecured, of the LLP, must be sent, by registered post or speed post or email or courier:
(a) A copy of the declaration filed in Form 2.
(b) The estimated amount of claims due to and an offer to accept the claims.
The Creditors must give their opinion in respect of voluntary winding up within 30 days of the receipt of the declaration to the LLP.
4) When 2/3rds of the value of the creditors of the LLP consent that:
(a) It is in the interest of all the partners and the creditors that the LLP be wound-up, then the LLP will be wound.
(b) The LLP will not be able to pay all their dues in full from the proceeds of the assets sold and agree with the decision to go for voluntary winding up by the LLP, then the LLP will be wound-up.
(c) The LLP will not be able to pay all their dues in full from the proceeds of the assets sold and propose that it is in the interest of all the partners and creditors that the LLP be wound-up by the National Company Law Tribunal, then the LLP must within 14 days from the date of consent, must file an application with the Tribunal for winding up.
5) Notice of any decision of the creditors to the LLP must be filed by the LLP with the Registrar within 15 days from the date of receipt of the consent of the creditors in Form 5.
6) Where the dues of the creditors have been paid to their satisfaction, their opinion will not matter and the LLP can be wound-up.
- A board meeting should be conducted with the two directors or by a majority of directors with a declaration by the Directors that they have made an enquiry into the affairs of the Company and they have formed the opinion that the company has no debts or that it will be able to pay its debts in full from the proceeds of the assets sold in voluntary winding up of the company.
- Fixing Date, time and place for conducting the general meeting.
- Issuance of notice for calling general meeting.
- Passing the special resolution of winding up conducting the meeting of Creditors and members, if it is in the interest of the all parties to wind up the company, then the company can be wound up.
- Appointment of registrar within 10 days of passing the special resolution.
- A notice should be publish in the Official Gazette and also advertise in a newspaper where the registered office of the company is situated.
- File certified copies of Special resolution within 30 days of general meeting.
- Preparation and audit of Liquidators account.
- Conducting a final general meeting and filing application along with the copy of account to the tribunal for passing an order for dissolution of the company within a time period of 2 weeks.
- Order of dissolution shall be passed by the tribunal within 60 days of application if satisfied.
- Liquidator shall file a copy of order to the Registrar.
- The notice in the official gazette shall be published by the registrar that the company is dissolved once the order of the tribunal is received by the registrar
- The petition or an application for winding up of an LLP could be filed with the tribunal by the LLP itself or by any of its partner(s) or creditor(s) or by the Registrar or by Central Government or by a person authorized by Central Government.
- The tribunal is empowered with the special powers that can be exercised by the Tribunal as per his discretion on presentation of the petition.
- Once the petition for winding up of the LLP, has been received by the Tribunal, it fixes a date for its hearing and issued notice to the LLP to appear and justify its position and the Tribunal gives a public notice in order to inform everybody, particularly, the creditors and the partners, about winding up so that their concerns or objections could also be considered.
- Once the Tribunal passes and communicates the Winding-up order to the firm, the following consequences will follow:
a) The petitioner and the LLP shall ensure that a certified copy of the winding up order has been filed with the ROC so that the Registrar could notify the fact in the Official Gazette.
b) The winding-up order serves as a notice of discharge to all the employees and officers of the concerned Limited Liability Partnership.
c) No suit or legal proceedings can be commenced against the LLP without the leave of the court. Even a suit, which is pending against the LLP at the date of winding up the order, cannot be preceded unless the permission of Tribunal is obtained.
- There is no objection received from any partner or creditor of the LLP;
- The objection to the proposed dissolution of LLP was subsequently withdrawn; or
- The Registrar is the view that the objection to the proposed dissolution is without justification.